China stocks slide 1.1 pct on grim economy outlook

(Adds fund manager comment, individual stocks)

* China index pares losses after sliding on economy worries

* Property stocks boosted by government support measures

* Banks drop on concern over sliding profit growth

By Samuel Shen and Claire Zhang

SHANGHAI (Reuters) - China's main stock index fell 1.07 percent on Thursday, tracking a slump in overseas markets on the global economy's grim prospects, but gains in property shares spurred by a policy support package pulled the index from its lows.

The benchmark Shanghai Composite Index .SSEC closed at 1,875.561 points, its lowest close since November 2006 and extending the previous day's 3.2 percent slump.

It recovered from the day's low of 1,828.308, however, after holding above a nearly two-year intraday low of 1,802 hit in mid-September, when the government intervened with a market rescue package. Some investors consider that a strong technical support level.

"Property shares might outperform in the short term because of the policy moves, but the correction in the property sector will not end anytime soon and it remains possible that the index will eventually test 1,802 points," said Li Wenhui, an analyst at Huatai Securities.

Falling stocks in Shanghai outnumbered gainers by 579 to 319. Turnover in Shanghai A shares was light at 32.9 billion yuan ($4.8 billion), although up slightly from Wednesday's 32.2 billion yuan.

"We're seeing an increasing number of companies posting losses, so pessimism is growing," said Huang Yan, fund manager at Guotai Fund Management Co. "New government policies to support the economy will keep coming, but you don't expect to see results overnight in a downward cycle."

POLICY MEASURES

Most property stocks rose after China late on Wednesday announced a series of policy changes, including tax cuts, to encourage home purchases. [nLM444674]

China Vanke (000002.SZ), the country's biggest listed developer, gained 4.39 percent to 6.89 yuan.

"We believe sentiment towards China stocks will improve," J.P. Morgan China equities head Jing Ulrich said in a note to clients on Thursday. "Property sales in the mass market should recover when sentiment turns positive."

Banking shares fell on expectations that lenders may report a sharp slide in profit growth for the third quarter due to a slowing economy and rising corporate defaults. [nSHA357972]

Industrial and Commercial Bank of China (601398.SS), the country's biggest lender, fell 2.81 percent to 3.80 yuan.

Oil refiner PetroChina (601857.SS) slumped 4.99 percent to 10.66 yuan.

China Railway Group (601390.SS) tumbled 5.94 percent to 4.75 yuan while China Railway Construction Group (601186.SS) slid 2.98 percent to 8.14 yuan. The two reported foreign exchange losses totalling $325 million, fuelling investor worries about Chinese companies' exposure to currency trading. [nHKG28277]

Huaneng Power International (600011.SS) fell 4.93 percent to 5.78 yuan after its announcement the previous day of a third-quarter net loss. Analysts said they did not expect it to return to profit in 2009. [nHKG373020]

Textile shares were hit by profit-taking after outperforming on Wednesday, buoyed by China's announcement of a rise in export tax rebates to cushion a slowdown in the economy. China Garment 000902.SZ sank 6.09 percent to 2.62 yuan after racing up its 10 percent daily limit on Wednesday.

($1=6.836 Yuan)

(Editing by Edmund Klamann)