Updates to market close

SHANGHAI, Feb 25 (Reuters) - China and Hong Kong stocks closed higher on Wednesday, as investors snapped up rare earth and metal shares amid simmering geopolitical tensions.

** China's blue-chip CSI300 Index .CSI300 ended 0.6% higher while the Shanghai Composite Index .SSEC gained 0.7%. Hong Kong's benchmark Hang Seng Index .HSI was up 0.7%.

** The CSI Rare Earth Index .CSI930598 jumped 6.1%, leading gains onshore.

** The rally came after China prohibited the export of dual-use items to 20 Japanese entities that it says supply Japan's military. The rules effectively cut companies off from the seven rare earths and associated materials currently on China's dual-use control list.

** Meanwhile, Reuters reported that the Trump administration plans to use a Pentagon-created artificial intelligence programme to help set reference prices for critical minerals.

** Non-ferrous metal shares .CSISNMIM climbed 3.8%, while materials shares .HSCIM outperformed offshore, up 2.7%.

** Tech majors fell in Hong Kong .HSTECH, down 0.2%.

** "Despite the year-to-date weakness in internet stocks causing significant losses, investors believe concerns over the AI-fear trade are exaggerated for the China market," UBS analysts said in a note to clients.

** "Consequently, investors are reallocating funds to less crowded sectors like oil services, coal, lithium, and insurance names."

** Hong Kong-listed Alibaba 9988.HK and Tencent 0700.HK fell 10% and 12%, respectively, over the past month, while onshore artificial intelligence shares lost nearly 4%.

** Onshore consumer staple .CSICS and real estate .CSI000952 shares rose 0.6% and 2.2%, respectively.

** Goldman Sachs analysts said data from the Lunar New Year period pointed to a solid demand backdrop, with consumers still willing to spend during the festival, broadly matching slightly higher market expectations.

** They, however, cautioned that a typical post-holiday slowdown and a longer break that might have flattered the figures made the subsequent trend crucial to monitor.

(Reporting by Shanghai Newsroom; Editing by Subhranshu Sahu)

((li.gu@tr.com))