China shares slip after tepid economic data, Hong Kong inches higher

Mon Mar 11, 2013 1:03am EDT

* HSI +0.4 pct, H-shares +0.3 pct, CSI300 -0.3 pct

* Mid-sized Chinese banks a drag on A-share index

* Yurun Foods dives after its profit warning

* Daqin Railway boosted by China railway ministry breakup

By Clement Tan

HONG KONG, March 11 (Reuters) - China shares were on track for a third straight daily loss on Monday, led by the banking sector after patchy economic data over the weekend raised doubts that earnings will recover for Chinese companies.

But a flight to earnings safety pushed up Hong Kong shares, which hovered nearly a three-week high touched early on Monday. A main factor Asia's third-largest insurer AIA Group, which climbed 2.5 percent to a record high. Last month, it posted 2012 earnings that beat expectation.

The Hang Seng Index went into the midday trading break up 0.4 percent at 23,194.4. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 0.3 percent.

In the mainland, the CSI300 of the leading Shanghai and Shenzhen A-share listings slipped 0.3 percent. The Shanghai Composite Index was down 0.2 percent as midday volume sank to its lowest in seven days.

Official data over the weekend showed China's consumer prices rose 3.2 percent in February from a year ago, its highest in 10 months, while industrial production growth in the first two months of 2013 was the lowest since October 2012 - the starting point of China's nascent economic recovery.

"It's still premature to predict what the central bank will do with this set of data, but it's difficult to draw any positive conclusions," said Hong Hao, chief equity strategist at Bank of Communication International Securities.

"We now know that both economic growth and the equities rally in December and January were driven by liquidity, we now need to see easier monetary policy converted into some kind of growth in the next few months," said Hong, adding that he is still advising clients not take excessive risk at present.

Mid-sized lenders were among the biggest drags on mainland benchmark indexes. China Minsheng Bank slipped 1.3 percent from Friday's one-month closing high in Shanghai, while Industrial Bank shed 2.5 percent.

The banking sector was further hurt by a China Business News report that quoted a vice director of the Chinese banking regulator as saying there are no plans to change the current 75 percent loan-to-deposit ratio cap. The official also said any rule adjustments would be aimed at containing risk.

Yurun Food, one of a series of Hong Kong-listed companies that over the weekend warned of declining profitability, tumbled 4.7 percent to its lowest since Dec. 13.

In a note dated March 10, Nomura's China strategist Wendy Liu said consensus growth estimates on the MSCI China are "likely too rosy." She expects estimates to get trimmed in the coming earnings season.

Shares of China Mobile, the country's largest mobile provider, rose 0.9 percent to their highest in more than a week. It will report earlier earnings on Thursday.

Daqin Railway climbed 1.2 percent in Shanghai following Being's announcement over the weekend about abolishing the railway ministry.

Brokerage CICC expects Daqin could be the most sensitive to any tariff hikes emanating from an asset revaluation, with pricing reform seen the initial focus after the formation of the China Railway Corporation to run the ministry's commercial functions.