HONG KONG - Shares in Chow Tai Fook Jewellery Group Ltd, the world's biggest jewellery retailer by market value, reversed losses to hit a six-month high on Friday, overcoming pessimism generated by disappointing earnings.

The Hong Kong-listed stock fell as much as 5.2 percent in early trade a day after the firm reported a big drop in six-month profit, but it later rebounded as investors focused on an upbeat outlook.

"Investors obviously looked beyond the last six months and took on a more positive view on China's economy and its retail sector in the forthcoming future," said Patrick Yiu, a director at CASH Asset Management, though adding that more evidence was needed to confirm a positive trend.

Shares in Chow Tai Fook, which competes with Cartier and Tiffany & Co, climbed as much as 6.8 percent in afternoon trade to HK$11.60, their highest since May. The shares ended at HK$11.32, up 4.2 percent and outperforming a 0.5 percent gain in the benchmark Hang Seng Index.

"We believe investors have an increasing appetite for Asian consumer and gaming stocks. With conditions in China improving, we believe investors will be buying stocks where medium term fundamentals are attractive," CLSA wrote in a research note.

"CTF (Chow Tai Fook) remains the clear leader in the attractive Chinese jewellery industry," CLSA said, adding it had upgraded the stock to underperform from sell.

Goldman Sachs forecast a better 2013 for Chow Tai Fook, with signs of accelerating growth as the jeweller's same store sales growth rose in November.

Smaller rival Luk Fook Holdings (International) Ltd , which jumped more than 10 percent on Thursday after posting better than expected first half earnings, also erased early losses to end 0.4 percent higher on Friday.

Emperor Jewellery & Watch rose 3.3 percent, while Chow Sang Sang and Tse Sui Luen Jewellery also rose.

"Stocks like Chow Tai Fook and Luk Fook are still worth a bet given that there are signs of a pick-up in consumer spending in China," said Alex Wong, a director at Ample Finance Group, which has funds that invest in Chow Tai Fook and Luk Fook.

Analysts said Luk Fook was benefiting from rising gold prices and relatively lower hedging costs because it hedged only 10-15 percent of gold inventories, lower than Chow Tai Fook's revised 70 percent.

Chow Tai Fook's hedging costs contributed to its six-month net profit falling by a third year-on-year to HK$1.82 billion, below analysts' expectations. The company said it will target e-commerce to boost growth, and is upbeat about a near-term rise in Chinese luxury spending.