• Hang Seng index rises as much as 3.7%
• Trump comments seen as more dovish than expected
• Mainland indexes rally on May manufacturing data

SHANGHAI: Hong Kong shares surged on Monday as investors expressed relief that US President Donald Trump did not immediately end special privileges accorded to Hong Kong by Washington.

By mid-morning, the benchmark Hang Seng index was trading 3.38% higher, having earlier gained as much as 3.7%. The Hang Seng's China enterprises index rose 3%, and the HSI property sector sub-index added 4.31%.

"The (US) President on the matter of Hong Kong had stopped short of sanctions or even touching on any other fresh restrictions or potential trade barriers against fears, helping to ease some of the frayed nerves across US to Asia," Jingyi Pan, market strategist at IG, said in a note.

Trump on Friday ordered his administration to begin the process of eliminating special U.S. treatment for Hong Kong to punish China, saying Beijing had broken its word over Hong Kong's autonomy by moving to impose new national security legislation, and that the territory no longer warranted U.S. economic privileges.

Mainland indexes also rallied on Monday morning, helped by data that showed China's factory activity unexpectedly returned to growth in May, though export orders continued to shrink.

The blue-chip CSI300 index was 2.08% higher, on track for its biggest one-day gain since April 7. The Shanghai Composite index added 1.61%.

Despite Monday's rally, the Hang Seng remains about 2.5% below its closing level on May 21. Hong Kong shares had their biggest one-day drop since 2015 on May 22, after China initially proposed imposing national security legislation on Hong Kong.

The proposal, approved by China's parliament last week, prompted a revival of protests against what protesters say is China's deep encroachment on Hong Kong's autonomy and freedoms.