HK, China shares slump; Bank of China falls

* Hong Kong shares post biggest one-day drop in three weeks

* China marks biggest one-day decline in nearly three months

* Chinese banks retreat on fundraising fears

* Shanghai B-share index ends down 7.34 percent
(Updates to close)

By Sui-Lee Wee and Claire Zhang

HONG KONG/SHANGHAI, Nov 24 (Reuters) - Hong Kong and China
stocks fell on Tuesday, dragged down by banks as investors took
profit after a recent rally, while concerns about capital-raising
plans by lenders sparked fears of shareholder dilution.

In Hong Kong, Bank of China (3988.HK) fell as much as 4.4
percent to a two-week low at HK$4.60 after the bank said it was
studying ways to raise capital, but had no plans to do so for
now. It closed down 3.95 percent at HK$4.62. [ID::nPEK295547].

Hong Kong investors took their cue from a sharp correction in
Shanghai stocks in afternoon trade, said Belle Liang, research
director at Core Pacific-Yamaichi, adding that there was no
fundamental reason for the sharp fall.

"The Shanghai market has been strengthening recently, so it's
not surprising to see some profit-taking," Liang said.

Brokers said the index could trade sideways in the near term,
with no catalysts to spur buying.

"The market seems to lack momentum and selling pressure is
still strong," said Castor Pang, research director at Cinda
International, adding that the benchmark index would likely trade
around 22,500 in the near term.

The benchmark Hang Seng Index .HSI closed down 1.53
percent, or 348.25 points at 22,423.14 -- its biggest one-day
drop in three weeks. Turnover was HK$67.1 billion ($8.66
billion), heavier than Monday's HK$51.9 billion.

China's banking regulator wants big state lenders, including
Bank of China (601988.SS), to raise their capital adequacy ratios
after a lending boom this year, according to a source with direct
knowledge of the matter. [ID:nHKG303608]

Bank of China was in talks with investment banks to raise
money via a new share issuance, two other sources familiar with
the matter said on Monday, in what could be a $15 billion
fundraising effort.

China Construction Bank (0939.HK) lost 3.38 percent to
HK$7.15, while Industrial and Commercial Bank of China (1398.HK)
fell 1.72 percent to HK$6.85.

"If that's the case, that they don't meet the capital
adequacy ratios, they will have to raise funds by issuing new
shares," Pang said. "It will have some impact on the Chinese
banking sector."

The China Enterprises Index .HSCE of top locally listed
mainland Chinese stocks fell 1.88 percent to 13,369.33.

SHANGHAI SLUMPS

China's key stock index slid 3.45 percent while turnover
jumped to a four-month high, after a sudden tumble in Shanghai's
dollar-denominated B-share index .SSEB spurred investors to
take profit in a market that analysts said had risen too quickly.

The Shanghai Composite Index .SSEC ended at 3,223.526
points, posting its biggest daily percentage drop in nearly three
months. The market reversed course late in the session after
climbing to a 3-½ month intraday high early in the day.

Losing Shanghai A shares overwhelmed gainers by 856 to 50
while turnover surged to 289 billion yuan ($42.32 billion) from
Monday's 203 billion yuan, suggesting funds were fleeing the
market as investors locked in profit from recent gains.

"The market has consolidated after recent sharp gains brought
mounting profit-taking pressure," said Zhang Qi, senior analyst
at Haitong Securities in Shanghai.

The 14-day Relative Strength Index had risen to a four-month
high of 75 by midday, above the overbought mark at 70. At the
close it had fallen to 57.

The Shanghai B-share .SSEB index closed down 7.34 percent
at 242.025 points, as investors pocketed profit from a recent
surge to 20-month highs, propelled by market talk that included
rumours the authorities might merge B shares into a planned
international board for foreign companies listing in Shanghai.

"A lack of government market-boosting steps sparked
profit-taking today, although we see no major negative news for
the market," said a trader at a major Chinese brokerage.

The B-share decline spilled over into the main board for
yuan-denominated A shares.

PetroChina (601857.SS), the most heavily weighted share in
the index, sank 2.98 percent to 13.68 yuan.

Analysts said upbeat expectations for China's economic
recovery and earnings growth continued to support market
sentiment, although investors would be cautious ahead of an
annual central economic meeting to be held soon to map out
policies for next year.

The index in the near term may find support at the key
psychological level of 3,200 points, they added.

The official Shanghai Securities News reported that the
economic meeting may set the tone for China to stick to an
"appropriately" easy monetary policy in 2010 to ensure a full
economic recovery, but it may also stress the need to fine-tune
policies more frequently.

The steel sector bucked the trend, lifted by firmer steel
prices and expectations of industry consolidation, with industry
leader Baoshan Iron and Steel (600019.SS) advancing 3.39 percent
to 8.23 yuan.

AnYang Iron and Steel (600569.SS) was up 9.84 percent at 6.25
yuan after the China Business News reported that Sinosteel Co was
in talks to buy the listed company's parent.
(Editing by Chris Lewis)
((suilee.wee@thomsonreuters.com; +852 2843 6314; Reuters
Messaging: suilee.wee.reuters.com@reuters.net))
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