HK stocks down as Chalco, Foxconn weigh; China up

* Chalco falls 4.14 pct after profit warning

* Trading firms lead rise in Shanghai on improving prospects (Updates to midday)

By Sui-Lee Wee and Lu Jianxin

HONG KONG/SHANGHAI, Jan 19 (Reuters) - Hong Kong shares fell 0.37 percent by midday on Tuesday, with Chalco tumbling after a profit warning and Foxconn succumbing to profit-taking, while China stocks strengthened led by trading firms.

Shares of Aluminum Corp of China Ltd (Chalco) (2600.HK), the world's most valuable aluminium maker, were down 4.14 percent after it warned it would post a loss for 2009. [ID:nTOE60H08U]

Hong Kong's benchmark Hang Seng Index .HSI was down 78.64 points at 21,381.37, heading for a sixth consecutive losing session. The China Enterprises Index .HSCE of top locally listed mainland Chinese stocks was down 0.06 percent at 12,283.18.

Market turnover fell to HK$38.67 billion ($4.98 billion) from midday Monday's HK$40.98 billion.

"We don't have much good news," said Jackson Wong, investment manager at Tanrich Securities. "Since China's tightening in the financial markets last week, everyone is cautious about whether we should be trading at these current high levels."

Shares in contract cellphone maker Foxconn International (2038.HK) fell 5.64 percent, a day after they soared to a 20-month high, as investors took profits and questioned the stock's steep valuation.

"The market has already factored any recovery prospects into Foxconn's current share price," said Arthur Hsieh, UBS analyst. "At current levels, I don't think we're likely to see much more upside, and that's worrying some investors."

Xiwang Sugar (2088.HK) fell 12.9 percent to the lowest level in more than two weeks and was among the top percentage losers in Hong Kong. The company said it would sell 120 million new shares to its controlling shareholder at a 16.05 percent discount at HK$2.51 each.

Chinese banks such as Bank of China (BOC) (3988.HK) and China Construction Bank (CCB) (0939.HK), weighed down in the past week by fears that Beijing would rein in lending, ended higher by midday as investors sought bargains after early declines.

BOC was up 0.76 percent at HK$3.96, while CCB had risen 1.13 percent to HK$6.24.

SHANGHAI FIRMS

China's key stock index edged up 0.27 percent by midday on Tuesday with trading companies surging, as further tightening of market liquidity by China's central bank capped the index's gains and offset expectations of strong economic data due for release this week.

The Shanghai Composite Index .SSEC was at 3,245.833 points at mid-session.

Despite the moderate gain, losing Shanghai A shares outnumbered gainers 558 to 339, while turnover rose to 89 billion yuan ($13 billion) from Monday morning's 86 billion yuan.

Major trading company Shanghai Lansheng Corp (600826.SS) was one of the morning's biggest gainers, jumping its 10 percent limit to 20.08 yuan, while exporter Lao Feng Xiang Co (600612.SS) also rose 10 percent to 32.55 yuan.

Trading firms, which are not a mainstream sector in China's stock market, were buoyed by improving prospects for a recovery in exports as the country's economy picks up steam.

The index rose nearly 1 percent in early trade, but news that the People's Bank of China raised the auction yield of its benchmark one-year bills for a second week rekindled worries over monetary tightening and trimmed gains. [ID:nTOE60I03B]

"The market is under heavy pressure from gradual government monetary policy tightening and a huge number of new shares that regulators are pushing onto the market to cool asset prices," said analyst Li Wenhui at Huatai Securities in Nanjing.

The latest source of new share supply, a $1.5 billion initial public offer by China XD Electric (601179.SS), the nation's largest maker of electricity transmission and distribution equipment, is opening to subscriptions on Tuesday.

"The market is still supported by China's strongly improving economy and consequently improving corporate earnings," Li said. "So the index may continue a period of range-bound trade as investors wait for signs that either positive or negative factors will prevail."

Investors are now awaiting Thursday's announcement of key Chinese data for the fourth quarter of 2009, which is expected to show the economy is on the track for a full recovery.

They are particularly sensitive to movements in the consumer price index, as inflation will determine the strength of the government's monetary tightening, traders said.

Over the past two weeks, the central bank unexpectedly raised the one-year bill auction yield by a combined 16.59 basis points. It also surprised the market with a 0.5 percent hike in bank reserve requirement ratios as the government signals it is gradually exiting its ultra-loose monetary policy in place since late 2008. (Additional reporting by Kelvin Soh in TAIPEI, Editing by Jonathan Hopfner)