Australia shares dip on Hong Kong unrest; banks outshine

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(Updates to close)

* U.S.-China tensions over proposed HK law persist

* Aussie financial stocks hit 2-1/2-month high

* Afterpay falls after five straight days of gains

By Shashwat Awasthi

May 27 (Reuters) – Australian shares settled lower on Wednesday as rising tensions in Hong Kong over China’s proposed security law took the shine off surging bank stocks and tempered expectations of a global economic recovery.

The S&P/ASX 200 opened lower but recouped losses to rise 1% in intraday trade. However, selling in the final 15 minutes of trade wiped out the gains, with the index closing 0.1% lower at 5,774.4.

New Zealand’s S&P/NZX 50 bourse rose 1.2% to 11,049.19 and hit a fresh two-and-a-half-month high.

Gains in New Zealand were in contrast to dips in many Asian markets following unrest in Hong Kong over a new security law proposed by Beijing that has also drawn the ire of the United States.

Losses in Australian equities were contained, however, as several countries re-opening for business fuelled hopes that the battered global economy could still be on the road to recovery.

“Markets are trying to compartmentalise the U.S.-China-Hong Kong fracas away from the unbridled optimism around the re-opening narrative,” said Stephen Innes, chief global markets strategist at AxiCorp.

Financial stocks were the standout performers on the Australian benchmark as they firmed 5.3% and hit their highest level since March 16, after brokerage UBS said the sector would benefit from a faster-than-expected economic recovery.

Australia and New Zealand Banking Group, which was UBS’ top pick, rose 8.2%, while No. 2 lender Westpac jumped 7.7%. National Australia Bank surged 7.5% as it also increased the size of its share sale by A$750 million.

However, buy-now-pay-later firm Afterpay slid 8.1% in its worst session since March 23 as investors locked in profits after a five-day rally in its shares. (Reporting by Shashwat Awasthi in Bengaluru; Editing by Subhranshu Sahu)

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