tw stock / 1669 / 33.133 / 27.5

14:05 05May09 RTRS-Taiwan stocks extend rally to 7-1/2-mth high * Market up 14 percent in past three sessions * Financial shares rose on expectations of Chinese investment * Auto shares gain on strong sales * Market turnover at 2-week high (Updates indexes, adds details and quotes) TAIPEI, May 5 (Reuters) - Taiwan stocks rose 0.78 percent on Tuesday in active trade, extending recent gains to a 7-1/2-month closing high, as financial shares including Cathay Financial <2882.tw> continued to rally over potential Chinese investments. The main TAIEX share index <.TWII> ended 49.54 points higher at 6,379.94, its strongest finish since Sept. 10, 2008 but pared much of its gains earlier in the session as investors locked in profits. The market has risen about 14 percent since last Thursday. Turnover rose to a two-week high of T$213 billion ($6.4 billion) from Monday's T$164.6 billion. Investors ignored news that 10 of the 19 U.S. banks being stress tested might need to raise more capital and continued buying local financial shares on expectations that warmer ties with China could boost sales. [ID:nN04400200] Taiwan's banking and insurance sub-index <.TFNI> jumped 4.67 percent. Cathay Financial, Taiwan's largest listed financial holding firm and Chinatrust Financial <2891.tw>, the island's top credit card issuer, both ended limit-up. "As foreign investors are likely to raise their ratings on financial firms, more funds are flowing to financial shares," said Bevan Yeh, a senior fund manager of Prudential Financial Securities Investment Trust. "The market might be pressured after sharp gains in recent sessions, but could still rise further in the near term. Foreign investors' buying will be key to the market's momentum." (For a table of foreign trading in Taiwan stocks, double-click on [ID:nTP170358]) Trading was volatile as some investors took profits from the market's recent rises, but analysts said the TAIEX could test as high as 7,000 points around the end of this month. Goldman Sachs raised its rating on Taiwan stocks and along with UBS, raised its year-end target for the TAIEX to 7,500, a local newspaper reported on Tuesday. Taiwan Semiconductor Manufacturing Co (TSMC) <2330.tw>, the world's No.1 contract chip maker, fell 1.69 percent, erasing a 14 percent rise over the past two sessions. The electronics sub-index <.TELI> edged up 0.14 percent. Smartphone maker HTC <2498.tw> fell 2.92 percent after a newspaper cited market research firm Strategy Analytics as saying global cellphone sales in the first quarter dropped by a record pace of more than 13 percent. Auto shares rallied after a newspaper said a sudden spike in demand for cars has resulted in a shortfall of 8,000 vehicles over three months, forcing Taiwan companies to work overtime to meet demand. The first wave of Taiwan industries open to mainland Chinese investment will include autos, traditional medicine and information technology, the paper said. Leading car maker Yulon Motor <2201.tw> closed limit-up, pushing the automobile sub-index <.TAUI> 6.06 percent higher. The construction sub-index <.TCOI> advanced 4.29 percent after a local newspaper reported Chinese will be allowed to buy real estate for personal use in Taiwan when the government announces its first areas open to mainland investment. --------------------TAIEX IN PERSPECTIVE-------------------- Move on day 0.78 percent Close on day 6,379.94 2009 intraday high 6,562.77 2009 intraday low 4,164.19 All time high 12,682.41 12 FEB 1990 ------------------------------------------------------------ (US$1=T$33.1) (Reporting by Gina Chang, Editing by Jacqueline Wong) ((gina.chang@thomsonreuters.com; +886 2 2508-0815; Reuters Messaging:gina.chang.thomsonreuters.com@reuters.com)) ((If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)) ASIA-PACIFIC STOCK MARKETS: Pan-Asia......[STXNEWS/AS] Japan........[.T] S.Korea....[.KS] S.E. 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