China shares extend losing streak, drag Hong Kong lower

Mon Jul 29, 2013 12:59am EDT

* HSI -0.6 pct, H-shares -1.4 pct, CSI300 -1.8 pct

* Profit taking hits Chinese material, railway issues

* Chinese financials fall as repo rate creeps higher

* Solar firms rise after EU trade dispute resolved

By Yimou Lee

HONG KONG, July 29 (Reuters) - China shares are set for a fourth day of decline on Monday, with Hong Kong deepening losses, as concerns over China's slowing economy kept investors sidelined ahead of data that may show the world's second-largest economy losing more momentum.

Chinese construction material and railway companies fell as

investors booked profits after recent rebounds following Beijing's pledge to reduce overcapacity in sectors such as cement and steel.

At midday, the CSI300 fell 1.8 percent, while the Shanghai Composite Index dropped 1.6 percent to 1,979.38 points. Both fell to their lowest in a week.

The Hang Seng Index slipped 0.6 percent to 21,843.6 points, but was still hovering around seven-week highs. The China Enterprises Index of the top Chinese listings in Hong Kong fell 1.4 percent.

"Investors prefer to stay on the sidelines for the time being," said KSI Asia Chief Operating Officer Ben Kwong in Hong Kong. "The market moves sideways and follows individual company news for trading."

"In the short term, it will still be an up-and-down market," he said, adding that he expected the Hang Seng to seesaw between 21,500 and 22,300 points in the coming weeks unless A-share markets show a strong rebound.

China is set to release July manufacturing PMI on Thursday, while HSBC's final reading is also due on the same day. The leading indicators could show that the massive manufacturing engine that powers China continues to lose steam.

Profits earned by China industrial firms slowed in June and rose 6.3 percent from a year earlier to 502.4 billion yuan ($81.9 billion), easing from a year-on-year growth of 15.5 percent in May.

News that China's National Audit Office would conduct an audit of all government debt also sparked worries about rising bad debt levels that could weigh on the economy.

Anhui Conch Cement , China's largest cement producer, dropped 3.8 percent in Hong Kong. Its Shanghai-listed shares fell 6.6 percent after surging 10.2 percent last week.

China Railway Construction fell 3 percent in Hong Kong and 2.2 percent in Shanghai.

Rate sensitive sectors such as banks and real estate were weaker as China's weighted seven-day repo rate crept higher early on Monday.

Bank of China shed 1.2 percent in Hong Kong and 1.1 percent in Shanghai, while Industrial and Commercial Bank of China Ltd fell 1.2 percent in Hong Kong and 1.1 percent in Shanghai.

Mid-sized Chinese banks also fell, with Industrial Bank down 3 percent and China Merchants Bank shedding 2.5 percent.

Mainland property developer Vanke dropped 3.7 percent to its one-month low in Shenzhen, while China Resources Land and China Overseas Land fell 2.6 and 1.1 percent in Hong Kong, respectively,

SOLAR SECTOR STRONG

The solar panel sector rose, encouraged by news that China and the European Union defused their biggest trade dispute by far with a deal to regulate Chinese solar panel imports and avoid a wider war in goods from wine to steel.

In Hong Kong, shares in Solargiga Energy Holdings Ltd jumped as much as 7.4 percent before trimming gains to 2.5 percent, while GCL-Poly Energy rose 1.5 percent.

Shares in China Molybdenum Co Ltd were suspended on Monday morning ahead of an announcement that the company agreed to buy a majority stake in the Northparkes copper mine in Australia from Rio Tinto for $820 million.