Hong Kong shares rebounded off a three-week low on Wednesday, led by Hutchison Whampoa after local media reported the ports-to-telecoms conglomerate may spin off its Watsons health and beauty retail unit through an initial public offering.
Strength in defensive shares pointed at underlying caution, despite broader optimism that the first partial U.S. government shutdown in 17 years will be short-lived and not have a broader impact on the economy.
At midday, the Hang Seng Index, which closed on Monday at its lowest since Sept. 9, was up 1.1 percent at 23,106.7 points. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 1 percent.
Hong Kong markets were shut on Tuesday for China's National Day holiday. Those in the mainland will stay closed until next Tuesday.
"Flows are still quite cautious," said Jackson Wong, vice president for equity sales at Tanrich Securities. "But I think people expect Washington to come to a form of compromise sooner rather than later."
Chinese Internet giant Tencent Holdings jumped 2.6 percent, stretching its 2013 gains to more than 67 percent. China Mobile rose 1.4 percent and Asian insurance giant AIA Group climbed 1.7 percent.
Gold miners slumped as gold prices hit two-month lows on Wednesday, rattled by large sell orders in New York that pushed prices below $1,300 the session before. Zhaojin Mining sank 3.2 percent, while Zijin Mining shed 2.7 percent.
Galaxy Entertainment gained 2.4 percent and Sands China rose 2 percent, ahead of Macau monthly gaming revenue data and on hopes the ongoing Golden Week holiday in the mainland could boost revenue.
GCL-Poly Energy surged 7.6 percent to its highest since March 2012, set for a second-straight daily gain after China's Ministry of Finance announced on Sunday that it will offer tax breaks to solar power product manufacturers.
Hutchison Whampoa was the top percentage gainer among the Hang Seng Index components, jumping 3.1 percent to its highest since February 2011. Its shares are now up more than 18 percent in 2013, versus the 2 percent rise on the Hang Seng Index.
The Hong Kong Economic Times reported on Wednesday that Hutchison may float Watsons in a separate IPO in the next 12 to 18 months that could initially raise up to $10 billion. This is the latest in a series of restructuring moves by businesses owned by billionaire Li Ka-shing.
"Li Ka-shing is really a superman," said Tanrich's Wong. "If true, this plan to spin off Watsons will generate good value for investors because of its higher margins."
Hutchison announced a "strategic review" of its Park'n Shop supermarket chain in late July, while Power Assets announced late last week plans to spin off its Hong Kong electricity business.