Hong Kong stocks extended gains on Friday as mainland China investors stepped up buying of shares in the city ahead of a scheme to link the Shenzhen and Hong Kong stock exchanges.

China shares were marginally firmer, with investors losing direction amid a recent range-bound trading pattern.

Hong Kong's benchmark Hang Seng index added 0.4 per cent to 23,243.87 points by the lunch break, its highest intraday level since November 2015.

If the HSI settles around that level, it would mark its highest close since August 2015.

The Hong Kong China Enterprises Index gained 0.8 per cent to 9,682.55.

The Hang Seng has rebounded nearly 30 percent from its February low, sustained by the attractiveness of relatively cheap valuations and the desire of mainland investors to move more of their assets overseas as the yuan weakens.

The rally got a further boost after China recently approved the Shenzhen-Hong Kong Stock Connect, which had fuelled expectations of more inflows from China.

Net inflows of money from China into Hong Kong this week have exceeded 12 billion yuan ($1.8 billion) so far, double last week's amount.

"Hong Kong stocks are still modestly valued US stocks look quite expensive, and Chinese stocks are not cheap," said Charles Wang, chairman of Shenzhen-based Appleridge Capital Management Co.

"Chinese money inflows into Hong Kong are sustainable. The southbound inflow is especially strong when the A share market is losing direction," Wang said, referring to inflows from the Shanghai-Hong Kong stock market connection scheme

China stocks were marginally higher by midday. The CSI300 index rose 0.3 per cent to 3,311.62 while the Shanghai Composite Index gained 0.1 per cent to 3,065.52.

Recent interim results by Chinese listed companies show signs of tentative recovery in bloated sectors including steel and coal, but investor confidence remain fragile.

China's real estate and banking stocks were firm on Friday but consumer and transportation shares weakened.

Shares rallied in China's venture capital firms, including Luxin Venture Capital, Jiangsu Protruly Technology Group and Kunwu Jiuding Investment Holdings, after Beijing unveiled new policies to support venture capital investment and innovation. – Reuters