* HSI -0.6 pct, H-shares -0.8 pct, CSI300 +0.1 pct
* ChiNext penny stocks sink again, but trim early losses
* Profit taking saps Monday's outperformers among financials
* HK property weak after U.S. Treasury yields spike
* China steel buoyed by report of consolidation plans
By Clement Tan
HONG KONG, Dec 3 (Reuters) - Hong Kong shares relinquished their highest levels in more than 31 months early on Tuesday as investors took profits on a Chinese financial sector that had been boosted a day earlier by signs that China could resume initial public listings next year.
The expections that IPOs could resume was bad news for penny stocks that have hitherto outperformed a moribund A-share market this year. Having touch record highs on Friday, they fell again on Tuesday, following a record drop the previous day.
At midday, the CSI300 of the biggest Shanghai and Shenzhen A-share listings was up 0.1 percent, while the Shanghai Composite Index slipped 0.1 percent in shrinking volume. Both indexes are still negative on the year.
The Nasdaq-style ChiNext Composite Index of mostly technology startups listed in Shenzhen sank 1.6 percent after sinking by as much as 4.8 percent earlier in the day. Despite tanking 8.4 percent in a record loss on Monday, it is still up more than 62 percent on the year.
The Hang Seng Index, which had closed on Monday at its highest since late April 2011, was down 0.6 percent at 23,898.3 points. The China Enterprises Index of the top Chinese listings in Hong Kong shed 0.8 percent.
"It's a pull back today for yesterday's top performers, but it's not a sign of weakness. The timing of China's IPO reforms was a bit faster than most had expected," said Jackson Wong, Tanrich Securities' vice-president for equity sales.
"But market sentiment could well change if the ChiNext index continues to slide like this. It could well spark panic in the A-share market," Wong added.
Citic Securities fell 4.4 percent from a record high in Hong Kong, while sliding 2.1 percent in Shanghai. China's biggest listed brokerage had led gains in the sector after regulators announced IPO reforms over the weekend, barely two weeks after Beijing unveiled a bold reform agenda for the next decade.
Pesistent tight liquidity in the money market in the mainland remained a nagging concern for investors in the share markets.
Yield-sensitive counters in Hong Kong sank after U.S. benchmark 10-year Treasury yields hit a one-week high as solid U.S. manufacturing activity data renewed speculation that the U.S. Federal Reserve could begin taperings its mega-stimulus sooner rather than later.
Hong Kong property developer New World Development and Wharf Holdings each fell 1.5 percent and Link Real Estate Investment Trust declined 0.9 percent.
Chinese consumer-related counters sank in Hong Kong after China's official purchasing managers' index (PMI) for the non-manufacturing sector eased slightly to 56.0 in November from 56.3 in October, the National Bureau of Statistics (NBS) said on Tuesday.
But Datang Power surged 7.6 percent in Shanghai and 2.6 percent in Hong Kong. Some Chinese cement and coal counters were again stronger on rebounding physical prices.
Angang Steel rose 1.6 percent in Hong Kong and 3.1 percent in Shenzhen after the official China Securities Journal reported that the Ministry of Industry and Information Technology is taking measures to curb steel overcapacity, such as encouraging consolidation on a regional basis and imposing a capacity quota.
The Economic Information Daily, a financial newspaper controlled by the official Xinhua news agency, reported on Tuesday that Beijing is likely to set a 2014 economic growth target of 7 percent when the annual Central Economic Working Conference is held later this month.