UPDATE 1 -Huishan Dairy debut feeble on worries about less govt favour
* Stock tumbles as much as 10 pct after IPO priced at top
* Huishan Dairy not named for state funds in Chinese media
* Disappointing debut may weigh on sentiment for IPOs (Recasts with comments)
HONG KONG, Sept 27 (Reuters) - China Huishan Dairy fell as much as 10 percent in its first trading day on the Hong Kong stock exchange, hurt in part by concerns that it may miss out on funds the Chinese government has earmarked for consolidation in the sector.
The disappointing debut comes after the company priced its $1.3 billion IPO last week at the top of expectations, with investors keen to buy into China's booming demand for milk and other dairy products as well as Huishan's position as the country's largest integrated dairy firm.
But in a state media report over the weekend, Huishan was not named among the first group of milk powder firms chosen to receive almost $5 billion in state funds that are aimed helping domestic firms better compete with foreign rivals who dominate the premium end of China's $12.4 billion infant formula market.
"There's some concern about government subsidies in the sector...this company is not included," said Steven Leung, sales director at UOB Kay Hian in Hong Kong.
The shares tumbled as low as HK$2.41, which compares with its IPO price of HK$2.67 per share and its marketed range of HK$2.28-$2.67. In afternoon trade, they were trading at HK$2.52.
The five companies chosen to receive state-funds included Mongolia Yili Industrial Group Co Ltd and China Mengniu Dairy Co Ltd, the official China Business Journal reported.
But others said the Huishan share price slide was likely more a reaction to the strong pricing it got last week, when it sentiment was upbeat after the U.S. Federal Reserve surprised investors by delaying plans to cut back its huge bond-buying program.
"It's just a reflection that the pricing was maybe too high, not necessarily a case based on fundamentals," said Anson Chan, an analyst at KGI Securities in Hong Kong, adding that any fears about subsidies were likely overblown.
"The focus (for government subsidies) has been on downstream. Maybe not this time, but in long term, the upstream should be benefitted as well."
Huishan Dairy's listing comes amid a slump in IPOs in Asia Pacific and its weak performance could further dampen demand for upcoming deals.
Hit by stricter regulations in mainland China and political uncertainty in Malaysia before general elections in May, new listings in Asia Pacific ex-Japan plunged 34.4 percent in the first nine months of 2013 from a year earlier, according to Thomson Reuters data.
Overall sentiment for IPOs in Hong Kong also took another recent blow when sources said Chinese e-commerce giant Alibaba was now looking at the U.S. for a listing after talks with Hong Kong regulators broke down over its shareholding structure.
In its IPO pricing, investors were drawn to Huishan as it has control over grass planting, dairy processing and product development - giving it more oversight on quality, an important edge in a sector plagued by safety scandals.
Huishan Dairy hired Deutsche Bank, Goldman Sachs , HSBC and UBS as sponsors and joint global coordinators of the IPO. CIMB, Investec Capital Asia and Jefferies acted as joint bookrunners. (Editing by Edwina Gibbs)
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