China, HK shares stumble on news of IPO ban lift

(Updates to midday)

HONG KONG/SHANGHAI May 25 (Reuters) - China and Hong Kong shares dropped on Monday, heading for a fourth day of losses, on worries over a heavy supply of new shares in the mainland markets after China said it would lift a moratorium on new listings as early as next month.

But market watchers ruled out a big sell-off in the mainland market, which has piled on close to 40 percent this year, on still-strong optimism for a quick turnaround in the Chinese economy fuelled by massive relief measures from the government.

Here are the index moves and major stock moves in the morning session.

HONG KONG

* The benchmark Hang Seng Index ended the morning session down 0.6 percent or 108.91 points at 16,953.61.

* The China Enterprises Index of top mainland companies was 0.5 percent lower at 9,739.31.

* Turnover dropped off to HK$31.2 billion ($4 billion) from midday Friday's HK$37 billion.

* China's surprise move to resume IPOs came at a time when the external environment was still weak, said analysts who had been hoping the ban on new share listings would stay in place until at least October.

* "This news will weigh down the Chinese market, and by default the Hong Kong market, for several days unless the Chinese authorities step in to say they will delay the resumption of IPOs to a later date," said Castor Pang, strategist with Sun Hung Kai Financial.

* But Hong Kong-based property developers continued to outperform as investors bet on a turnaround in demand and recovery in property prices in the second half of 2009 amid favourable mortgage terms and low savings rates in the territory.

* Market leader Sun Hung Kai Properties (0016.HK), which has found favour with top brokerages including Morgan Stanley and Bank of America-Merrill Lynch in recent days, climbed 4.3 percent to HK$89.55, while Li Ka-shing's property flagship Cheung Kong Holdings (0001.HK) added 3.2 percent.

* Another big gainer, Weichai Power (2338.HK) jumped 8 percent to HK$29.60 on news its shareholder Weichai Holdings Group would merge with Shandong Construction Machinery Group Co and Shandong Auto Industrial Group to form an autoparts maker targeting more than 100 billion yuan ($14.6 billion) in sales by 2012.

Weichai Holdings Group owns 14.92 percent of Weichai Power.

* Other electricity equipment makers also gained on expectations of higher spending on power infrastructure in China. Harbin Power (1133.HK) rose 5.2 percent, while Shanghai Electric (2727.HK) gained 3.9 percent.

SHANGHAI

* Shanghai Composite Index .SSEC ends morning down 1.23 percent at 2,565.721 points.

* Fourth day of losses, to three-week intraday low, after index climbed to nine-month high middle of last week.

* Losing Shanghai A shares outnumber gainers 761 to 154.

* Turnover in Shanghai A shares rises to 60.2 billion yuan ($8.8 billion) from Friday morning's 52.6 billion yuan.

* Huatai Securities analyst Chen Jinren says market was stronger than expected and short-term correction might end sooner than some had feared.

* "(The IPO news) damped sentiment as it was earlier than expected and the index could be weighed down for a couple of days, maybe falling back to 2,500 points," Chen said.

* Analysts expect benchmark index to find initial support near 30-day moving average, now at 2,556 points.

* Shares fell across the board, although brokerages, whose earnings have been hurt by an eight-month drought in mainland IPOs, gained. Haitong Securities (600837.SS) rose 4.08 percent to 14.03 yuan.

* Coal and steel weak, with coal industry leader China Shenhua Energy (601088.SS) down 2.99 percent at 25.31 yuan, and Baoshan Iron and Steel (600019.SS) off 2.29 percent at 5.97 yuan.

* Shandong Juli (000880.SZ) was up by the 10 percent daily limit at 9.94 yuan, while Shantui Construction Machinery 000680.SZ jumped 7.34 percent to 11.56 yuan, after they announced a merger merger of their parent companies to form a major autoparts maker. [ID:nSHA141255]

(Reporting by Parvathy Ullatil in HONG KONG and Claire Zhang in SHANGHAI; Editing by Edmund Klamann and Chris Lewis)