China stocks gain as energy shares rise; HK falls

* China shares hit 3-month high

* Chinese energy stocks gain on demand outlook

* HK market erases earlier gains on profit taking

(Updates to midday)

By Jun Ebias and Lu Jianxin

HONG KONG/SHANGHAI, Nov 18 (Reuters) - Chinese shares hit a
three-month high on Wednesday, as investors bought energy stocks
on optimism demand for power would rise to fuel the country's
economic recovery.

In Hong Kong, shares weakened after hitting the 23,000 level
for a second day, as investors took profit on HSBC (0005.HK) and
other lenders.

The Shanghai Composite Index .SSEC was up 0.26 percent in
active trade to close at 3,291.464 points at midday.

Changchun Gas (600333.SS) was the biggest gainer, jumping its
10 percent daily limit to 8.75 yuan.

"An increasing number of investors are now pouring money into
the market, expecting it to sustain a medium-term rally due to
China's improving economy and corporate earnings," said Zhang Qi,
senior analyst at Haitong Securities in Shanghai. [ID:nSHA122035]

Analysts said they were optimistic that the index could
breach its 2009 peak of 3,478, touched in early August, in the
next couple of months, but they also warned a great deal of
short-term profit-taking pressure had built up in the market.

The 14-day Relative Strength Index, at 73, has surged well
into overbought territory from an oversold level under 30 in
mid-August, when the market was in a steep downtrend due in part
to pressure from high valuations.

"It won't be a surprise if the market stages some sort of
correction in the short term," Zhang said.

Turnover in Shanghai A shares was a heavy 103 billion yuan
($15 billion) on Wednesday morning, although that was down from
Tuesday morning's 113 billion yuan.

Losing Shanghai stocks overwhelmed gainers by 598 to 284,
indicating that many investors had already begun pocketing gains
while index heavyweights played the key role in sustaining the
market's moderate rise.

Top lender Industrial and Commercial Bank of China
(601398.SS) was one of the morning's most active stocks, rising
0.91 percent to 5.55 yuan, partly buoyed by recently resurfaced
expectations of yuan CNY=CFXS appreciation against the dollar.

Chinese banks, whose assets are concentrated in the Chinese
currency, are expected to see their asset value greatly enhanced
if the yuan appreciates in the future.

Coal shares outperformed the market as recent snows in China
have disrupted transport and boosted coal prices. Shenhua Energy
(601088.SS) gained 1.5 percent to 38.00 yuan, while Yanzhou Coal
(600188.SS) rose 2.78 percent to 21.85 yuan.

HONG KONG FALLS

The benchmark Hang Seng Index .HSI fell 0.70 percent, or
160.16 points, to 22,753.99 at midday, after earlier rising to as
high as 23,099.57. Turnover rose to HK$46.5 billion ($6 billion)
from midday's Tuesday's HK$41.2 billion.

Hong Kong shares on Tuesday reached the 23,000 mark for the
first time since July 2008.

The China Enterprise Index .HSCE of top locally listed
mainland Chinese stocks slipped 0.69 percent to 13,636.73.

"At around the 23,000 level, selling pressure is very high
and the momentum is much weaker," said Peter Lai, director at DBS
Vickers.

"Fear of asset bubbles and concerns about interest rate hikes
and the withdrawal of stimulus measures keep the market from
going up further."

HSBC fell 1.72 percent as investors pocketed recent gains.
The stock rose to as high as HK$98.25 on Tuesday, its highest
since Oct. 2008.

Other lenders also fell. Bank of China (3988.HK) slid 1.42
percent and China Construction Bank (0939.HK) lost 1.08 percent.

China Mobile (0941.HK) was up 1.88 percent. The world's
biggest mobile carrier by subscribers is one of the companies
that will carry Dell Inc's (DELL.O) smartphone products to be
launched in China in late November. [ID:nN13455140]

China Strategic Holdings (0235.HK) succumbed to profit taking
and ended up 3.33 percent at midday. The stock earlier surged
13.33 percent after the firm agreed to sell its 30 percent stake
in AIG's (AIG.N) Taiwan Life insurance unit to Chinatrust
Financial (2891.TW). [ID:nTP221742]

Far East Golden Resources (1188.HK) soared 11.86 percent. The
automobile axle maker said it would team up with a development
zone to set up a manufacturing base for hybrid automotive
propulsion systems.

Melco International (0200.HK) was down 3.8 percent. The
company said quarterly losses at its 33.48 percent owned Melco
Crown Entertainment (MPEL.O) widened.

China Starch Holdings Ltd (3838.HK) rose 2.38 percent. The
cornstarch producer said it aimed to lead the domestic market by
taking over rivals. [ID:nHKG173553]

(Editing by Jonathan Hopfner)