China shares up on hopes for relaxed investment rules, Hong Kong slips
* HSI -0.1 pct, H-shares +0.6 pct, CSI300 +0.4 pct
* Shanghai stocks up on reports about free-trade zone
* Moutai, liquor stocks fall on weak 2014 outlook (Updates to midday)
By Alice Woodhouse and Natalie Thomas
HONG KONG, March 25 (Reuters) - China stocks rose on Tuesday morning, largely due to strong gains by companies linked to Shanghai's free trade zone after media reports indicated restrictions on foreign investors there could be relaxed.
Gains were partially offset by declines in liquor counters led by Kweichow Moutai Co Ltd, which forecast only a small revenue increase this year.
Hong Kong shares eased slightly as investors looked for direction ahead of Chinese bank earnings later this week.
Agricultural Bank of China will announce its earnings later on Tuesday and Bank of China will report on Wednesday.
Mainland media reported that officials would further relax investment restrictions on foreign investment in the Shanghai free trade zone.
Reports quoted Zhou Zhenhua, head of the Shanghai Municipal development research centre, as saying regulators might reduce the "negative list", widely touted as a clarification to previous, vague guidelines restricting investment in China, for the zone by 40 percent.
Cao Xuefeng, Chengdu-based head of research at Huaxi Securities, said "There have been some fairly major adjustments to the Shanghai free trade zone recently, so investors are speculating on this geographical area again," said Cao
The CSI300 rose 0.4 percent, as did the Shanghai Composite Index, which was at 2,075.24 points.
By midday, the Hang Seng Index was down 0.1 percent at 21,820.64 points. The China Enterprises Index of the top Chinese listings in Hong Kong rose 0.6 percent.
Castor Pang, Core Pacific Yamaichi head of research, said the Chinese stock market was still in a consolidation phase, with new preferred share rules seen as a positive sign.
"It implies that the Chinese government is willing to do something to maintain the markets to be healthy, that's helped local investors to maintain positive sentiments on Chinese stocks listed in Hong Kong," Pang said.
On Tuesday, shares in Shanghai International Port Group were up 10.1 percent, their daily limit, while those in Shanghai Lujiazui Finance & Trade Zone Development Co rose 10 percent. Shares in Shanghai Waigaoqiao Free Trade Zone Development Co gained 8.5 percent.
China's alcohol producers fared less well as the government's anti-graft crackdown on luxury consumption by officials continues to hurt demand.
Kweichow Moutai, China's leading luxury 'baijiu' liquor manufacturer, fell 3.7 percent even though it posted a stronger than expected rise in 2013 net profit for 2013, as it predicted just a 3 percent increase in revenue for 2014.
Shanxi Xinghuacun Fen Wine Factory Co Ltd lost 6.2 percent.
Shares in China's largest pharamceutical distributor Sinopharm Group jumped 6.3 percent in Hong Kong after Credit Suisse upgraded it to outperform from neutral. The brokerage said the firm's core earnings growth may gradually improve in 2015-16.
China's largest food and beverage maker Tingyi Cayman Island Holding Corp rose 3.9 percent as brokers maintained their buy rating on the stock, expecting the company to have strong earnings in 2014 due to improving contributions for its Pepsi business and lower costs of key raw materials.
($1 = 6.1888 Chinese Yuan) (Editing by)