Hong Kong shares fall with Tencent a big drag, China slips

Wed Jul 9, 2014 12:45am EDT

* HSI -1.2 pct, H-shares -1.1 pct, CSI300 -0.5 pct

* Tencent has biggest fall in over a month after U.S. tech shares fall

* Chinese banks weaker despite Temasek comment

* Luye Pharma jumps on HK debut (Updates to midday)

By Grace Li

HONG KONG, July 9 (Reuters) - Hong Kong shares fell on Wednesday after U.S. stocks skidded, with Internet giant Tencent the biggest drag, while Chinese markets were knocked off three-week highs as banks fell.

China's consumer price inflation cooled slightly more than expected in June, pointing to lingering weakness in the economy, which could prompt Beijing to launch further stimulus measures to shore up growth.

By midday the Hang Seng Index had fallen 1.2 percent to 23,248.43, after ending the previous four sessions with movements of less than 0.1 percent. The China Enterprises Index of the top Chinese listings in Hong Kong fell 1.1 percent.

The CSI300 of the leading Shanghai and Shenzhen A-share listings was off 0.5 percent, while the Shanghai Composite Index was down 0.4 percent at 2,056.89. Both closed at their highest since mid-June on Tuesday.

"We have seen some selling in Wall Street ahead of the reporting season. That has spread out the sentiment towards Hong Kong," said Alex Wong, director of asset management at Ample Finance Group.

Wednesday's decline, which pushed Hong Kong's benchmark index decisively off seven-month highs, was "just a correction to an overstretched rally", Wong added.

Tencent sank 2.6 percent, its worst daily drop since May 29, tracking losses in Internet names on the Nasdaq overnight. HSBC Holdings PLC, the second-biggest drag on the index after Tencent, slid 1.1 percent.

Chinese banks were also big underperformers. Bank of China shed 2.0 percent in Hong Kong and 0.8 percent in Shanghai. Smaller lender China Minsheng Bank lost 1.0 percent in Hong Kong and 0.8 percent in Shanghai.

On Tuesday, Singapore sovereign investor Temasek Holdings Pte Ltd said it would keep investing in Chinese banks even though it reported a slowdown in portfolio growth due to a drop in the value of some of its bank holdings.

Temasek owns a 6 percent stake in China Construction Bank (CCB) and a 2 percent stake in Industrial and Commercial Bank of China.

CCB's H-shares slipped 0.9 percent to a 1-1/2-month low. Daiwa Capital Markets downgraded the stock by two notches from "buy" to "hold" on Monday, citing property exposure as a big drag.

Bucking the trend was Luye Pharma Group, whose shares jumped 11.3 percent on its Hong Kong debut, boosting prospects for other so-called "China orphan" firms that were delisted by private equity firms from overseas bourses to relist closer to home, where demand for Chinese firms is seen as more vibrant. (Editing by Alan Raybould)