Hong Kong shares test 2013 lows, China outshines Asia

Mon Feb 25, 2013 11:59pm EST

* HSI -0.8 pct, H-shares -1.1 pct, CSI300 +0.8 pct

* Last week's record fund drain in China not easing: official media

* Risk off in HK as hung Italian parliament stokes debt jitters

* Smaller Chinese banks lead as A shares outshine Asia

By Clement Tan

HONG KONG, Feb 26 (Reuters) - Hong Kong shares tested a new 2013 low in weak Tuesday trade, shrugging off strength in the mainland Chinese market with financials leading index losses after a messy outcome in the Italian elections turned investors wary to risk.

Mainland China shares outperformed Asian peers after official media dispelled tightening fears as the central bank moved to drain a record 910 billion yuan ($145.98 billion) from the banking system last week.

The Hang Seng Index went into the midday break down 0.8 percent at 22,645.2, after earlier touching its lowest 2013 intra-day level. It has now fallen almost 5 percent from a Jan. 30 peak and down 0.1 percent this year to date.

The China Enterprises Index of the top Chinese listings in Hong Kong shed 1.1 percent as midday turnover neared this year's lows after election results showed no party won enough votes to form a new Italian government, raising fears of renewed debt problems in Europe.

Short selling in Hong Kong accounted for more than 10 percent of total turnover, above the historical 8 percent average, traders said.

The CSI300 of the top Shanghai and Shenzhen A-share listings climbed 0.8 percent, while the Shanghai Composite Index rose 0.4 percent. If gains are held, this will be their second-straight gain after steep losses last week.

"This is not a good entry point for those who have missed the rally at the start of the year," said Hong Hao, Bank of Communication International's chief strategist.

He added that uncertainties relating to the Italian election, the continuation of U.S. quantitative easing and Japan's new central bank governor will likely rise in the coming weeks and could roil markets.

"Expectations for the upcoming parliamentary meetings in China are also too high. The meetings next week will be about the big picture, longer-term goals and specific details are highly unlikely," Hong said.

The annual Chinese People's Political Consultative Conference and National People's Congress, where Xi Jinping is expected to be confirmed as China's new president, will start in Beijing on March 3 and 5, respectively.

On Tuesday, railway counters slid after the Guangzhou-based 21st Century Business Herald newspaper reported that a plan to merge China's ministry of railways with the communications ministry has been submitted for consideration at the second plenary meeting of the 18th Communist Party of China's Central Committee for review this week.

Daqin Railway dived 3.7 percent in Shanghai, while China Railway Construction shed 2.1 percent in Shanghai and 2.7 percent in Hong Kong.

Shares of HSBC Holdings, Europe's largest bank, shed 0.9 percent and was the top drag on the Hang Seng Index. China Construction Bank (CCB) shed 1.3 percent to its lowest this year in Hong Kong.

Premium alcohol producers Kweichow Moutai slid 1.5 percent in Shanghai, while smaller rival Wuliangye lost 1.4 percent in Shenzhen after the official Xinhua news agency said the government planned to toughen anti-corruption rules. The liquors are popularly given away as gifts.

NO CHINA EASING, YET

Smaller banks led the rise in the A-share market, with China Minsheng Bank jumping 4.6 percent in Shanghai and Ping An Bank surging 9.2 percent in Shenzhen after local media reported that both stopped mortgage lending in Beijing.

Gains so far came in the best midday Shanghai bourse volumes in a week as the People's Bank of China drained a significantly smaller 5 billion yuan ($802.07 million) from the money markets through 28-day bond repurchase agreements on Tuesday.

The official Shanghai Securities News reported on Tuesday that the suspension of fund injections by the central bank this week does not mean China will tighten monetary policy as the economic recovery is not solid.

In a report on Tuesday, CICC said last week's move was in response to the ultra-loose money supply conditions before the Lunar New Year, but the draining of funds was a warning against the high growth of total social financing in January.

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