(Updates prices)

SHANGHAI, Sept 1 (Reuters) - Shanghai stocks flirted

with fresh 10-year highs, while Hong Kong shares climbed on

Monday, supported by Alibaba ( BABA ) after the e-commerce giant reported

strong AI-driven growth, fuelling investor confidence in Chinese

innovation.

** Sentiment on the mainland was also aided by regulators'

pledge to consolidate the "good trend" of the stock market,

which jumped 10% in August in its best month in almost a year.

** The Shanghai Composite Index closed 0.5% higher

while the blue-chip CSI300 Index gained 0.6%.

** Hong Kong's benchmark Hang Seng Index jumped

2.2%.

** The gains were driven by a 19% surge in index heavyweight

Alibaba ( BABA ), after the tech company said artificial

intelligence was key to the growth of its cloud computing

business.

** China Europe Capital Chairman Abraham Zhang said that

Alibaba's ( BABA ) progress in AI, including its breakthrough in AI

chips, "will have far-reaching implications to China's entire AI

value chain," and represents a "watershed moment" for the

industry.

** Market gains were also supported by growing expectations

of a U.S. interest rate cut later this month.

** China's CSI AI Index rose 2.7% to a record

high on Monday, while Shanghai's STAR Semiconductor Index

jumped 3%.

** Bets on homegrown chipmakers were also strengthened by

news that the U.S. is making it more difficult for chipmakers

Samsung and SK Hynix ( HXSCF ) to produce chips in

China by imposing curbs on exports of U.S. equipment.

** Biotech shares also jumped on growing

optimism about Chinese innovation.

** Banking shares softened, after China's major

state-owned banks warned that net interest margins will face

increased pressure for the rest of the year.

** Despite concerns the Chinese economy could come under

greater pressure in the second half of the year, analysts said

"China's bull run has legs," as valuations remain modest while

there are few signs of retail euphoria.

** China's securities regulator said on Friday that it would

continue to consolidate the upward trend and make the market

more appealing to long-term investors.