China, HK shares extend slide despite policy reassurance

* Worries linger over stock valuations, monetary tightening

* Energy plays weighed down by falling crude prices (Updates to mid-morning)

HONG KONG, July 30 (Reuters) - Chinese stocks, which on Wednesday dropped the most in eight months in record turnover, fell more than 1 percent in volatile trade on Thursday on lingering worries that this year's rally has outpaced earnings growth.

Hong Kong shares drifted lower, coming off a firm start, as energy stocks tracked falling crude oil prices and Chinese financial stocks slipped on continued concern Beijing may move to stem lending.

But analysts maintained the correction would be short-lived despite the record rally in Chinese stocks this year.

"There's a need for a correction in the short-term, but it's hard to say the long-term upward trend of the market has been reversed," said Huang Yan, a fund manager at Guotai Fund Management Co. "Valuations are already expensive but liquidity remains excessive, so it's a gamble."

The Shanghai Composite Index .SSEC ended the morning down 1.15 percent at 3,228.747 points, erasing earlier gains.

Losing Shanghai A shares outnumbered gainers by 727 to 158. Turnover in Shanghai A shares fell to 127 billion yuan ($18.6 billion) from Wednesday morning's 143 billion yuan.

Investors, although concerned about a shift in central government monetary policy, were unmoved after People's Bank of China bank vice-governor Su Ning said the central bank would "unswervingly" stick to appropriate loose monetary policy. The comments, reported in Thursday's Financial News, echoed recent remarks by Premier Wen Jiabao.

The China Securities Regulatory Commission vowed to increase efforts to crack down on illegal stock trading, major financial newspapers reported. Some investors interpreted that as a sign regulators were moving to prevent stock market bubbles.

By 0400, the benchmark Hang Seng Index .HSI was down 0.6 percent at 20,003.34, extending Wednesday's 2.4 percent slide.

Offshore oil specialist CNOOC (0883.HK) shed 3.3 percent after crude oil prices pulled back further on Thursday, following the biggest single-day percentage loss since April in the previous session as U.S. crude stockpiles jumped.

The China Enterprises Index .HSCE, which represents top locally listed mainland Chinese stocks, was 1.2 percent lower at 11,839.00, led by a 1.9 percent drop in top insurer China Life (2628.HK). (Reporting by Parvathy Ullatil and Samuel Shen; Editing by Chris Lewis)