China shares end lower as cash crunch worries linger, Hong Kong in tepid rebound

* HSI +0.5 pct, H-shares -0.1 pct, CSI300 -0.4 pct

* China credit crunch fears ease, economy still a worry

* China shares reverse gains as short-covering peters out

* Hong Kong shares at one-week high, retailers rebound

By Yimou Lee

HONG KONG, June 27 (Reuters) - China shares edged lower in volatile trade on Thursday, limiting gains in Hong Kong markets as sentiment remained fragile despite signs that a cash crunch in the banking sector was easing.

Chinese markets surrendered early gains with the key benchmark index slipping to end at fresh four-and-a-half year lows as investors opted to take profits after recent gains.

The Shanghai Composite Index ended down 0.1 percent at 1,950.01 points, its lowest close since January 2009, while the CSI300 of the leading Shanghai and Shenzhen A-share listings dropped 0.4 percent, hovering around its lowest since December 2012. Shanghai's turnover was some 41 percent above its 20-day moving average.

The Hang Seng Index ended well off the day's highs, but was still up 0.5 percent at 20,440.08, its highest close in a week. The China Enterprises Index of the top Chinese listings in Hong Kong finished down 0.1 percent. Hong Kong's turnover was at its lowest in a week, but still slightly above its 20-day moving average.

"The money is not so willing to chase the highs. The market sentiment is still weak," said Linus Yip, a strategist with First Shanghai Securities in Hong Kong.

"After the short-covering is over, we will have some pullback," he said.

China cash rates eased for a fifth day on Thursday as the panic of a possible credit crunch that gripped the market last week subsided, but traders said money market rates remain elevated and liquidity is tighter than normal.

Chinese markets regained some stability after the central bank earlier this week moved to quell concerns by saying it had provided funds to some institutions and will do so again if there is a need.

Yet, it remained commited to cracking down on risky informal lending, pointing to tougher conditions for the banking sector ahead and possibly slower economic growth.

In Hong Kong, Industrial and Commercial Bank of China (ICBC) gained 1.3 percent and China Construction Bank (CCB) fell 0.4 percent, while in Shanghai ICBC rose 1.9 percent and CCB 1.8 percent.

The president of CCB, the country's No.2 lender, said on Thursday it has not stopped issuing new loans amid a tightening of credit in the country that has sparked reports some banks may be reining in lending.

China regulators have also quickened approvals for quota applications under the renminbi qualified foreign institutional investor (RQFII) scheme, allowing more foreign investors to use offshore yuan to buy mainland securities, according to media reports.

WINDOW DRESSING

Traders said "window dressing" buying by fund managers to improve the appearance of a portfolio ahead of the half-year also gave markets a boost, with retailers particularly strong after the recent sell-off.

Shares of jewellery retailer Chow Tai Fook Jewellery Group Ltd surged 4.9 percent on Thursday, after the stock plunged to a record low on Tuesday.

Shares of China's largest footwear retailer Belle International Holdings Ltd rebounded 4.6 percent, after hitting its lowest since June 2010 earlier this week.

In China, Anhui Conch rose 2.1 percent after plunging 16.9 percent since mid-June, while China State Construction rose 2.3 percent after a 12.7 percent decline in the past six sessions.

"It's just bargain-hunting. There are still lots of uncertainties ahead," said Ben Kwong, KSI Asia Ltd's chief operating officer in Hong Kong. "The market will still have quite of lot of volatility in the third quarter," he said.