China got good news about economic growth this week, and that was bad. The news stoked fears of interest rate hikes and combined with steps to cool off property market speculation to push Hong Kong stocks lower.

The blue-chip Hang Seng Index held last week’s hard-won 22,000 level for the first four days of the week but fell sharply Friday on news of Chinese property market tightening. The Hang Seng ended the week down 343, 1.5%, at 21,865. The index of Chinese companies was more sensitive to concern over economic tightening, plunging 3.8%, 490 points, to 12,557.

“First quarter GDP (11.9% year-on-year) and CPI were quite strong … and the street expects in the near term interest rates will go up even higher,” Belle Liang, head of China research at Core Pacific Yamaichi, told the Weekly Roundup. She also noted that China tightened lending requirements for second-time home buyers and took other steps to curb property market speculation.

Expectations of Chinese currency appreciation buoyed the market the previous week, Liang said, but a meeting between President Barack Obama and Chinese leader Hu Jintao on Monday failed to yield the expected boost to the RMB.

Not surprisingly property stocks plunged: R & F (2777 in Hong Kong) fell more than 4% on Friday. Chinese banks, a prime mover behind the recent rally, also slumped.

“Near term sentiment is negative,” Liang said. She expects the market to consolidate for a few weeks before moving higher again on strong corporate growth and moderate RMB appreciation.

Rampant speculation that a meeting next Monday between President Barack Obama and Chinese leader Hu Jintao will lead to appreciation of the Chinese RMB currency led Hong Kong sharply higher this week in robust turnover.

In just three days of trading after the Easter Holiday the blue-chip Hang Seng Index jumped 3.1%, 671 points, to 22,208. Before the current strong rally began two weeks ago, the Index had struggled for weeks to stay above 21,000. The index for Chinese companies rose this week 2.8%, 351 points, to 13,047.

The U.S. has long pressured China to raise the value of the RMB to help ease America’s enormous trade deficit. But the Chinese suspended gradual appreciation in recent years to protect their important export sector during the global recession.

That is expected to change next week when Obama and Hu meet. And since many Hong Kong-listed companies get most of their revenue in RMB, investors have been almost giddy.

“This week expectation for RMB appreciation has moved the market,” Conita Hung, head of equities at Delta Asia Financial, told the Weekly Roundup. “Also some individual companies’ results have performed well.”

Next week, the big Chinese banks that have led the rally will probably consolidate their gains, Hung said. A moderate rise in the RMB will help airlines and telecommunications companies, she said.

Corporate results won’t be much of a factor, according to Hung, because the reporting season is almost over. And a lot will depend on whether China’s March economic data will indicate further monetary tightening.

Hung predicts the market will trade between 21,500 and 22,400. “I expect Hong Kong will test higher,” she said.

Powered by China plays, Hong Kong’s blue-chip Hang Seng Index finally seemed to climb solidly above 21,000 in this holiday-shortened week. And there’s a good chance the rise will continue when trading resumes next Tuesday.

The Hang Seng struggled and failed for weeks to stay above 21,000. The current move started last Friday with a 1.2% surge and carried through this week’s four days of trading.

The Hang Seng, which includes many big Chinese companies, gained 484 points, 2.3%, to close the week at 21,537. The index of Chinese stocks surged even more: 5.4%, 646 points, to 12,696.

China stocks in Hong Kong rode a strong rise in Mainland markets, Ben Kwong , chief operating officer at KGI Asia, told the Weekly Roundup. That rise emerged partly because of anticipation of the launch of stock and futures index trading on April 16.

There are plenty of other positive forces, according to Kwong. They include good corporate results, the end of the quarter and a lessening of worries over future Chinese economic tightening. In addition the market is in a strong technical rebound after correcting in January and February. On Thursday the Hang Seng broke above its 100-day Moving Average (21,324) and kept going to break 21,500.

And it looks like there’s more where that came from, Kwong said, with the index going higher to test 22,000. “There’s still further upside,” he said.

“People are positive about the (economic) recovery, so buying interest will focus on recovery plays – shipping, exporters and manufacturers. And consumption plays (such as autos and appliances) will continue to outperform the market.”

Hong Kong’s blue-chip Hang Seng Index, which includes numerous Chinese heavyweights, edged back above 21,000 Friday but still ended the week lower in lackluster turnover.

The Hang Seng dropped 1.5%, 318 points, to 21,053 after failing to hold last week’s attempt to rise solidly above 21,000. The index for Chinese stocks lost 1.7%, 212 points, to 12,050.

“There’s a feeling we can’t break out well above 21,000,” Howard Gorges, vice chairman of South China Brokerage, told the Weekly Roundup. “When we reach that level people want to take profits, and when we get down to around 20,000 there’s more interest in buying.”

The picture isn’t overly gloomy, Gorges said. Corporate results from Chinese and Hong Kong companies have been consistently strong, and there’s lots of cash on the sidelines. Weak turnover indicates selling pressure is mild. Hedge funds and traders seem to be bouncing the market around 21,000 in reaction to daily headlines about Greek debt, Indian interest rate hikes and the like.

But there are nagging worries, Gorges noted. Some of them revolve around expected further credit tightening in China and uncertainty over movement of China’s currency. The European debt crisis is also worrying, and there is a fear the crisis could spread, perhaps eventually even to the U.S.

Predictions of Chinese credit tightening is holding back Mainland banks and properties, Gorges said, but other stocks are doing fairly well. On Friday, for example, Chinese banks were mixed, but paper and coal producers posted robust gains.

Gorges expects next week there will be more of the same – daily headline-driven moves around the 21,000 level.

Hong Kong sailed into this week with a big gain following a surge on Wall Street and lack of monetary tightening at a Chinese government meeting the previous Friday. The rest of the week has been forgettable for the major indexes, with a string of flat closes on puny turnover.

The blue-chip Hang Seng Index, which includes major Chinese companies, rode Monday’s 409-point gain to rise 422 points, 2.0%, for the week to 21,210. The index of Chinese companies put on 2.1% for the week, up 246 points to 12,173.

“The week kicked off on a good note, but then ran into head winds,” said Howard Gorges, vice chairman of South China Brokerage, told the Weekly Roundup. The hold-up is a familiar one, he said: worry that China will pull back from loose lending and low interest rate policies enacted in late 2008 to combat the global recession. The worry was reinforced during the week when China reported higher-than-expected consumer price inflation for February.

Gorges said concern over harm to China’s economy from a pull-back are overdone. “Interest rates are at historically low levels, and in the past China’s economy has grown with rates at a higher level,” he said. He also pointed out that corporate results and other fundamentals have been generally strong through this week.

Air China (0753), for example, surged 11% Friday when it announced it would fund expansion by selling more shares in Hong Kong and China.

However, Gorges expects a continuation of cautious trading. “Next week it will be the same story,” he said: “When will China raise interest rates as inflation looms?”