China stocks post worst mth since Aug 2009, HK weaker

* Shanghai shares down 10 pct in May

* HK stocks end worst month since January down 6.4 pct

* MTR, New World fall after govt fails to award project

* Shanghai property sub-index .SSEP down 2.6 percent (Updates to close)

By Sui-Lee Wee and Farah Master

HONG KONG/SHANGHAI, May 31 (Reuters) - Shares in Shanghai closed out a dismal month on a weak note on Monday, posting their biggest ever monthly fall since last August on concern over further tightening in the real estate sector after the government said it would implement property tax reform.

In Hong Kong, persistent fears about a government move to clamp down on real estate speculation also pressured shares, which eased 0.01 percent on Monday to their biggest monthly fall since January.

China's benchmark Shanghai Composite Index .SSEC fell 2.4 percent, ending the day at 2,592.146 points.

China's State Council, or cabinet, said on the central government's website on Monday that it would gradually start to reform property tax policies. The announcement came after a report that Shanghai's government had submitted a property tax plan to the central government.

Analysts said the announcement from the state council had a negative impact on the market and could prevent a rebound in the near term.

"The report that Shanghai had submitted a property tax plan did not worry the market as much as the State Council's announcement," said Wen Lijun, analyst at Nanjing Securities. "There is a possibility that a property tax could emerge, with the market waiting for further confirmation on policies. This has a big impact on A-shares."

Shanghai's property index .SSEP fell 2.6 percent, with property firm Gemdale (600383.SS), the second-most active share on the Shanghai index, down 4.3 percent.

Shanghai's stock index has been one of the worst performing in Asia, down 21 percent on the year, after China a introduced range of policies to tame speculation in the country's red-hot property sector.

The index has steadied in recent sessions but is still down 10 percent on the month.

China State Construction Engineering Co (601668.SS), the country's top developer and construction company, fell 1.6 percent.

Property shares have borne the brunt of Shanghai's stock market falls in recent months and are down 29 percent on the year.

Losing Shanghai stocks outnumbered gainers 817 to 73, while turnover fell to 87 billion yuan ($12.74 billion) from Friday's 98 billion yuan.

Bank of China (601988.SS) was the most active counter on the Shanghai index, up 2 percent, after the country's No.3 lender said it would issue a convertible bond this week. [ID:nTOE64T01W]

WORST FALL SINCE JAN

The benchmark Hang Seng Index .HSI ended the day down 0.01 percent or 1.52 points at 19,765.19, snapping a three-day rally, on news that Hong Kong's government had decided not to award the tender for a HK$33 billion ($4.24 billion) housing project, suggesting that the city's real estate market was continuing to stagnate under government measures to curb speculation. [ID:nTOE64R071]

The China Enterprises Index .HSCE of top locally listed mainland Chinese stocks closed down 0.12 percent at 11,494.31.

Property-related stocks in Hong Kong fell. MTR Corp (0066.HK) slipped 1.3 percent, while New World Development (0017.HK) lost 1.6 percent.

Although Hong Kong shares -- which are down 6.4 percent for the month and about 9.6 percent for the year -- are ripe for a recovery, June could be a tepid month for stocks, said Castor Pang, research head at Cinda International.

"The market will not have a strong rebound," he said. "It will only trade in a range of 1,000 points. There's still too much uncertainty about European countries."

For the month, Hong Kong stocks were largely dragged down by fears of the impact the euro zone debt crisis could have on the global economy and concern about China's clampdown on the property market.

"At this moment, I don't think we should sell any sectors," said Steven Lam, vice-president at Karl Thomson Securities. "They have had a major correction, so valuations are attractive."

Dealers said investors were cautious about taking positions with public holidays on Monday in the United States and Britain.

Turnover reached HK$47.6 billion ($6.11 billion), considerably lower than Friday's HK$71.7 billion. (Editing by Chris Lewis)