Hong Kong shares worst fall in 5 weeks, Shanghai at 6-mth low

(Updates to close)

* HSI down 1.9 pct, back below 200-day MA

* Shanghai Comp dives 2.4 pct, down 1.3 pct for the year

* China consumer names hit after inflation drops more than expected

* PetroChina, Sinopec hit by Morgan Stanley downgrade

By Clement Tan and Vikram Subhedar

HONG KONG, July 9 (Reuters) - Hong Kong and Shanghai shares suffered their steepest declines in five weeks on Monday, as more benign than expected inflation data raised fears of weakening consumer demand in China.

Profit warnings issued by some firms added to the sense of unease in the world's second largest economy.

Both consumer and producer prices eased slightly more than expected in June, hitting China consumer names in Hong Kong, such as Want Want China and Tingyi (Cayman Islands) Holding Corp .

Profit warnings from Angang Steel and Chinese sportswear retailer China Dongxiang dealt further blows to sentiment at the start of a week full of macroeconomic data releases.

Second-quarter GDP numbers, due out on Friday, are expected to be the worst in at least three years.

"Falling inflation means food producers will find it difficult to increase prices," said Hong Hao, chief strategist at Bank of Communications International Securities.

"But the bigger story today is how the bigger-than-expected decline in inflation points to an economy slowing down quicker than previously anticipated, which will hurt demand and margins harder than decreased pricing power," Hong added.

The Hang Seng Index closed down 1.9 percent at 19,428.1, back below its 200-day moving average, currently at 19,559.2.

It had only clambered above this level last Tuesday after falling below it in mid-May.

The slip triggered stop-losses in the index futures market just above the 200-day moving average, accounting for the 150-point slide in morning trade, traders said. Thin trading, turnover was 14 percent lower than Friday, exacerbated the drop.

The Shanghai Composite Index slumped 2.4 percent to its lowest close since Jan. 6 in trading volume that neared Friday's three-week high. It is now down 1.3 percent for the year.

Instant noodle maker Tingyi slumped 4.1 percent from Friday's two-month closing high, while rice cracker maker Want Want shed 2.7 percent from Friday's all-time closing high.

Want Want is currently trading at 29 times forward 12-month earnings after gains of more than 31 percent this year, 25 percent more than its historical median, according to Thomson Reuters StarMine.

China Yurun Food Group Ltd finished down almost 10 percent after the meat processor's founder resigned as chairman, the latest Chinese company to see a management reshuffle amid increasing economic uncertainty. Trading in the share was seven times its 30-day average.

Chinese insurers were hurt by a report from UBS analysts who warned that first half earnings for the sector will be weak. China Life Insurance shed 3.5 percent and Ping An Insurance lost 2.5 percent in Hong Kong.

An accounting treatment of investment losses brought forward from 2011 hurt first quarter results for insurers and will significantly affect first half earnings, UBS said.

CYCLICALS WEAK, ONSHORE-OFFSHORE SPLIT IN CHINA PROPERTY

Growth-sensitive sectors were among the biggest drags in both markets. Chinese oil majors were also hit by a downgrade of the sector by Morgan Stanley analysts, from "attractive" to "in line" on Monday.

PetroChina Co Ltd lost 4.1 percent to HK$9.48 after they shaved their price target to HK$8.50 from HK$11. China Petroleum & Chemical Corp (Sinopec) shed 2.4 percent after they cut their price target to HK$7.70 from HK$10.

Angang Steel Co Ltd lost 5.6 percent after issuing a profit warning, while sportswear retailer China Dongxiang (Group) Co Ltd fell 8.2 percent after its profit warning.

Chinese property stocks were mixed in onshore Chinese markets, diverging from weakness in the offshore markets after China Premier Wen Jiabao said on Saturday that Beijing should stick with measures aimed at cooling property prices.

Shenzhen-listed China Vanke gained 0.1 percent, while Shanghai-listed Poly Real Estate rose 1.4 percent, although a gauge of property developers listed in Shanghai slipped 0.9 percent.

In Hong Kong, China Overseas Land & Investment lost 3.4 percent, while China Resources Land shed 2.8 percent.

But in both markets, the Chinese property sector has outperformed the broader market this year, due to speculation that chnages will be made to make it easier for developers to obtain credit for new projects.

In a sign that the sector may be on the mend after steps taken to cool the property market, average home prices in China's 100 major cities edged up 0.1 percent in June from May, snapping a nine-month decline.

China Overseas Land is up 42 percent in 2012, compared to the 5.4 percent gain for the Hang Seng Index. Vanke is up 29 percent, compared to the 3 percent gain on the CSI300 Index, the large cap-focused benchmark that tracks the biggest 300 companies listed in Shanghai and Shenzhen. (Editing by Simon Cameron-Moore)