HK, China shares drop on valuation concerns

(Updates to midday)

HONG KONG, June 9 (Reuters) - Hong Kong sank for a second straight session on Tuesday, shedding early gains, as blue chips were sold down on worries the market had run ahead of itself in recent weeks, distorting valuations.

Elsewhere, China shares dropped as financials retreated following Monday's sharp gains while worries about a near-term resumption of initial public offerings weighed on sentiment.

"We've been seeing mixed economic signals from the United States, corporate profit warnings and weakness in the European markets. There is real concern that the market has been overstretched after weeks and weeks of rallies," said Alex Tang, research director with Core Pacific-Yamaichi International.

Here are the index and top stock moves by midday-

HONG KONG

* The benchmark Hang Seng Index .HSI was down 1.3 percent at 18,020.45 after dropping to 17,710.45 earlier.

* The index, which has added a quarter to its value since the beginning of 2009, is currently trading at over 16 times the estimated earnings of its constituents in 2009.

* Turnover rose to HK$42.6 billion ($5.50 billion) from HK$40.3 billion by midday Monday.

* Big gainers in the recent rally took a beating on Tuesday with Tencent (0700.HK), which has piled on more than 85 percent since the beginning on June, dropping 4.2 percent to HK$85.85.

* The China Enterprises Index .HSCE of top mainland companies had fallen 1.6 percent to 10,493.68.

* China Huiyuan Juice (1886.HK) retreated after the Financial Times reported that U.S. private equity fund Warburg Pincus had ended its investment in China's top juice producer, becoming the first big stakeholder to pull out of the company after the collapse of Coca-Cola's $2.4 billion takeover offer.

The stock was down 7.7 percent at HK$6.

* Chinese consumer goods exporter Li & Fung (0494.HK) shed 2.5 percent to HK$23.10 as the fate of a customer, German retailer Arcandor, hung in the balance. [ID:nL8403441]

SHANGHAI

* The Shanghai Composite Index .SSEC ended the morning down 1.03 percent at 2,739.945.

* Losing Shanghai A shares outnumbered gainers by 714 to 206, while turnover in Shanghai A shares edged up to 71.9 billion yuan ($10.5 billion) from Monday morning's 67.6 billion yuan.

* New draft rules announced for a planned Nasdaq-style market for start-up firms suggested a broad range of investors would be allowed to participate, including those with little stock market experience.

Analysts said the rules suggested the launch of the new market and a resumption of IPOs on the main board could occur soon, which would weigh on share prices with new supplies of equity.

* Financial shares were mostly weaker, relinquishing some of their gains on Monday when news of a possible tie-up between Ping An Insurance (601318.SS) and Shenzhen Development Bank (000001.SZ) helped to spur a rise that lifted the index to a fresh 10-month high. Shares in the two companies remained suspended as the market awaits confirmation of a tie-up.

Minsheng Bank (600016.SS) fell 2.08 percent to 7.53 yuan.

* "The index has been consolidating between 2,700 and 2,800 points since the start of this month, but with the failure to break through to the upside, profit-taking pressure could pull it back to 2,600," said Huatai Securities analyst Zhou Lin.

* Analysts said an initial target on the downside may be the bottom of a gap on the charts at 2,635 points.

* Chinese liquid crystal display maker BOE Technology Group (000725.SZ) raced up its 10 percent daily limit to 5.05 yuan after saying it had raised 12 billion yuan in a share placement. Analysts said it was the biggest fund-raising in the stock market so far this year and the price was attractive, but investors were still wary about risks in both the stock market and the industry.

* Chinese tourism and property development firm Shenzhen Overseas Chinese Town Holding (000069.SZ) also soared its 10 percent limit to 17.93 yuan after being suspended from trade since May 18. It said it would place 486.39 million shares with its parent company, from which it will purchase tourism and property-related assets valued at 7.37 billion yuan.

(Reporting by Parvathy Ullatil in Hong Kong & Claire Zhang in Shanghai; Editing by Edmund Klamann & Jonathan Hopfner)