SHANGHAI/LONDON (Reuters) - Emboldened by China's latest measures and pledges to fix the weakest parts of its struggling economy, domestic investors are scooping up shares in a cheap stock market, while most foreign investors are hopeful but taking it slow.

Last week's sweeping measures to support the property sector, which authorities dubbed as historic, were the latest in a series of steps China has taken since February in a bid to boost consumption, funnel state money into priority sectors and underpin the stock market.

Share prices have rebounded from multi-year lows in February on signs of more official support. The benchmark Shanghai index has climbed more than 3% since reports of the property rescue surfaced on Thursday, taking its gains to a fifth in 3-1/2 months, though the rally stalled on Tuesday as investors awaited more details on how the funding would work. Hong Kong-listed Chinese shares are up nearly 38%.

Capital flow data shows that rally has primarily been driven by mainland investors returning to a market they abandoned during the pandemic years. Foreign money has been a trickle.

"To some extent, I think what's been announced isn't yet of a scale that is going to start putting a meaningful kind of tens of percentage points onto GDP," said Sunil Krishnan, head of multi-asset funds at Aviva Investors in London. "So, for investors that's a challenge."

Krishnan says his funds do not have any active positions in China but have exposure to commodities that will indirectly benefit if its property market recovers from a prolonged slump.

But Aviva will have to move from being bearish on China to a more neutral position, as "China policy does seem to be waking up to the realities of what's needed," he said.

The latest property measures seem pivotal as China's central bank and provincial governments jointly announced steps to buy unsold homes and ease mortgage rates, suggesting Beijing was intent on reviving the sector which once accounted for a fifth of the country's economic output.

Among those was a pledge by the People's Bank of China to set up a 300 billion yuan ($41.46 billion) relending facility for state-owned enterprises to purchase completed, unsold homes.

The numbers were "slightly underwhelming", but the intent to put "money to where their mouth is" was constructive, said Zhenbo Hou, a strategist at BlueBay Asset Management.

"They're no longer denying the problems. They're recognizing the issues. They're coming towards the market view on what the solutions should be... This explains why financial assets are responding in a positive way," Hou said.

FLOWS

The series of steps to put a floor under markets that began with regulatory measures to curtail short-selling and measures to stimulate strategic technology sectors, raise pensions and subsidise housing, were aimed at getting Chinese consumers to spend again.

But foreign investors, looking for signs of a more sustainable economic turnaround, are keen for more stimulus, and flow data shows the hesitation.

An analysis of flows into 3,000-odd Japan-focused funds and a similar number of China ones on LSEG's Lipper database shows Chinese funds had net inflows this month, but investors have withdrawn $1.2 billion from China so far this year and put $18 billion into Japan.

Chi Lo, senior markets strategist at BNP Paribas Asset Management in Hong Kong, says people are discernibly less negative on China, but not ready to rotate cash out of other markets.

"We've seen some increase in allocation back to China but that's out of the spare cash the investors have at this point. They are still positive on Japan. They are still positive on India."

Most long-term money managers are waiting for breakthroughs in the still-sour Sino-U.S. relationship, particularly heading into the November U.S. presidential election, and bigger stimulus proposals, said Jason Hsu, chief investment officer at Rayliant Global Advisors.

While China's domestic investors have turned bullish, they have shown a preference for Hong Kong-listed shares, which are cheaper and likely to rise harder and faster if foreigners join the rally.

Mainland investors have pumped roughly $33 billion into Hong Kong stocks via the Stock Connect scheme. Data compiled by Ping An Securities shows mainland equity ETFs drew 23.6 billion yuan of inflows in April, 10 times that seen in March.

Yet, flows into China-focused global ETFs such as Krane Funds Advisors' KraneShares ETF and Blackrock's iShares China Large-Cap ETF remain tepid, having fallen for months.

KraneShares recommends being neutral or underweight on China.

Chief Investment Officer Brendan Ahern points to inflows into mainland-listed equity ETFs as evidence "Chinese investors are buying China".

George Maris, chief investment officer and global head of equities at U.S. Principal Asset Management which manages around $651 billion assets, said negativity on China had gone too far.

Maris is bullish on several sectors, including technology, and has re-allocated capital to China since September.

But a broad re-rating of Chinese equities by global investors still hasn't happened and wouldn't until markets rallied first, he said.

($1 = 7.2365 Chinese yuan renminbi)

(Additional reporting by Summer Zhen, Yoruk Bahceli, Jason Xue, Tom Westbrook, Patturaja Murugaboopathy; Graphics by Marc Jones; Writing by Vidya Ranganathan; Editing by Kim Coghill)