Hong Kong shares ended higher on Monday, lifted by the strongest southbound inflows via the Stock Connect in three weeks, even as investors remained cautious over the outlook for tighter cash conditions in the market.

The benchmark Hang Seng Index ended trading on the first day of the week up 158.65 points, or 0.67 percent, at 23,689.13.

The Hang Seng China Enterprises Index rose 0.82 percent to end at 8,597.36 while the Hang Seng Tech Index rose 1.05 percent to end at 5,187.01.

Onshore investors bought a net 7.9 billion yuan of Hong Kong shares via the Stock Connect on Monday, the highest since May 30.

Mainland investors helped drive a rally in Hong Kong shares this year, but their participation has tapered off in the past two months.

Hua Hong Semiconductor and SMIC jumped around 4.5 percent each, after media reported that the US government is weighing additional restrictions on China, including revoking waivers that allow global chip makers to access American technology in China.

Meanwhile, the Hong Kong dollar slipped to 7.85 per US dollar on Monday, hitting the weaker end of its trading band for the second time since May 2023. The move may prompt the Hong Kong Monetary Authority to drain liquidity from the banking system to support the currency.

Hong Kong market liquidity is unlikely to ease further and may even tighten as Hong Kong interbank offered rates (Hibor) have likely bottomed out and southbound inflows have slowed, said Kevin Liu, strategist at China International Capital Corporation.

The overnight Hibor, a key barometer of liquidity, hovered near a record low at 0.01777 percent.

"Short-term liquidity tightening, uncertainties surrounding tariff negotiations, weakening economic data and delays in policy support could all contribute to increased market volatility," Liu said.

Mainland Chinese stocks closed higher on Monday, with the benchmark Shanghai Composite Index up 0.65 percent to 3,381.58.

The Shenzhen Component Index closed 0.43 percent higher at 10,048.39.

China's Coal Index rose 1.6 percent.

Maritime shipping and port shares broadly rose, with Nangjing Port up to 10 percent. (Reuters/Xinhua)