HONG KONG (Reuters) -Hedge funds, especially U.S.-based ones, added bullish bets on Chinese stocks last week on hopes of progress in U.S.-China trade talks, according to Morgan Stanley ( MS ).

MSCI China Index and China's blue-chip CSI 300 rose 2.4% and 1.9%, respectively, last week, ahead of the high-stakes U.S.-China trade talks in the Swiss city of Geneva over the weekend.

U.S.-based hedge funds "re-engaged" with China by absorbing both Chinese shares traded in the U.S. and domestic A-shares, after seeing encouraging signs surrounding the potential for a trade deal, Morgan Stanley ( MS ) said in note published Friday.

In comparison, hedge funds reduced positions in most other Asian regions, led by Thailand, Hong Kong, India and Australia, the bank said.

Both U.S. and Chinese officials struck a positive note after they ended the two-day Geneva trade talks, with markets awaiting specific details of any early agreement later in the day.

Before the meeting, U.S. President Donald Trump signaled a willingness to de-escalate the trade war and said an 80% tariff on Chinese goods "seems right," suggesting for the first time a specific reduction target since he imposed a 145% tariff on Chinese imports.

Chinese shares dropped sharply the week following those tariff announcements but have since recovered. Both CSI 300 and Hong Kong's Hang Seng Index now nearly back to around the April 2 level when Trump announced sweeping tariffs.

Hedge funds' exposure to China is still well below peak levels, Morgan Stanley ( MS ) added.

For most investors, China remains a tactical trade for now.

Michael Dyer, an investment director for M&G Investments' long-short multi-asset strategy, said his firm recently raised exposure to China.

"We don't have a better crystal ball for what's going to happen in China. But at a certain point, the risk-return gets so appealing," he said, referring to global investors' extremely low positions and the cheap valuation of Chinese equities.

(Reporting by Summer Zhen; Editing by Lincoln Feast.)