Hong Kong shares up as coal miners rally, China flat

(updates to midday)

* HSI up 0.2 pct, H-shares up 0.1 percent

* Shanghai Comp, CSI300 little changed by midday

* Coal stocks continue rebound; Lenovo, casinos weak on outlook

* HSBC top drag on HSI as Bofa Merrill maintains "underperform"

By Vikram Subhedar

HONG KONG, July 4 (Reuters) - Hong Kong shares edged higher on Wednesday, helped by a rebound in coal stocks and a jump in bluechip Hutchison Whampoa, although weakness in large-cap financials caused the benchmark to underperform its Asian peers on the day.

The Hang Seng index ended the morning session up 0.2 percent at 19,770.1 points in lighter volume ahead of a public holiday in U.S. markets. The China Enterprises index was up 0.1 percent by the midday trading break.

Shares in HSBC Holdings fell 0.6 percent and were the top drag on the benchmark after Bank of America Merrill Lynch reiterated an "underperform" rating on the stock.

The Hang Seng has recovered about half of its losses from a 16 percent slump that began on May 2 as the eurozone debt crisis spread and worries over global growth gained traction. The index is up 9.4 percent over the past month.

On the mainland, the Shanghai Composite and the CSI300 both ended the morning little changed.

"The stock market needs fresh incentives to move higher. So we still have to wait for the ECB, whether there will be any further easing policy," said Ben Kwong, chief operating officer at KGI Asia in Hong Kong, referring to expectations that the European Central Bank will cut interest rates at a meeting on Thursday.

"If you look at the turnover in the past few days it's not that big, so that means momentum is decreasing," said Kwong, adding that the market could face some profit-taking pressure after the recent rally.

Beleaguered coal stocks, which hit multi-year lows last month on worries over slowing demand and overcapacity in the sector, extended their rebound for a second day.

China Shenhua, the nation's top producer, jumped 4.1 percent in Hong Kong and its Shanghai listing rose 1.3 percent. Smaller rival China Coal rose 5.6 percent and was the top gainer on the Hang Seng while Yanzhou Coal rose 4.2 percent.

Analysts at CICC said they remained cautious on the sector on concerns that earnings forecasts for coal companies are still likely to see cuts following first-half results.

"Coal stocks may stage a technical rebound, as mid-term values are emerging, but mind mid-year result risks," said CICC, which has China Shenhua as its most defensive pick in the sector.

Traders also attributed to gains in the sector to speculation in local Chinese media about authorities linking coal prices to electricity prices.

Hong Kong bluechip Hutchison Whampoa bounced 4 percent, its biggest single-day jump since March, after the Financial Times reported that it was in advanced talks with Vodafone about merging the two companies' Irish telecoms infrastructure.

Hutchison was the top boost for the Hang Seng.

Among the losers on the day, PC maker Lenovo fell 4.1 percent to a near 5-month low in 1.5 times its average 30-day volume as brokers including Jefferies and CLSA raised concerns about the outlook for the PC market.

Sands China, the most actively traded stock among benchmark constituents, fell a further 1.6 percent as the gaming sector sees profit-taking following data showing a second month of lower-than-expected gambling revenue from Macau.

(Reporting by Vikram Subhedar; Additional reporting by Sisi Tang; Editing by Kim Coghill)