UPDATE 3-China Rail Construction debuts up 12 pct, disappoints

(For expanded IPO diaries, click <HK/IPOMENU> <CN/IPOMENU>) (Adds quote, closing price)

By Kennix Chim and Rita Chang

HONG KONG, March 13 (Reuters) - Shares in China Railway Construction Corp (1186.HK), which built the world's highest railroad, rose 12 percent on their Hong Kong debut on Thursday, in line with lowered expectations, after the firm raised a combined $5.4 billion in a Hong Kong and Shanghai IPO.

The uninspiring debut amid a broader Hong Kong market .HSI that fell 4.8 percent is expected to curb enthusiasm for other upcoming issues, with one broker saying the shares would have had to have closed up by about 20 percent to reassure investors.

The IPO is the world's largest this year and the most popular ever among Hong Kong's retail investors, despite a shaky market that has seen more than $23 billion in global IPO plans postponed or withdrawn in 2008, according to Thomson Financial.

"If it can't close near HK$13, most of the big-cap IPOs like Pacific Insurance can forget about raising money in the first half. It's a key indicator," said Steve Cheng, associate director at Shenyin Wanguo.

China Pacific Insurance (601601.SS) on Monday delayed a planned $4 billion Hong Kong share sale due to the weak market, but two other firms -- China's Evergrande Real Estate and Taiwan snack maker Want Want China Holdings -- are raising $2.1 billion and $1.4 billion, respectively, in ongoing Hong Kong IPOs.

This year's lacklustre IPO market follows two blockbuster years for deals in Hong Kong and Shanghai.

"In any normal market, a 20 percent upside is seen as quite healthy, but with the excesses of last year, people will view it as a disappointment -- even though they should not," said Andrew Clarke, a trader at Societe Generale Securities.

Shares in China Railway Construction ended at HK$12 after reaching as high as HK$12.66 in the morning, compared with a Hong Kong IPO price of HK$10.70, which had been at the top of an indicated range. The debut is only the third of the year in Hong Kong, and several deals have been delayed or scrapped.

Heavy retail oversubscription meant local investors who applied for shares using margin financing needed to see a higher gain in the share price in order to break even.

Investors who subscribed for 1 million shares at a 4 percent margin interest rate would break even only if the shares rose to HK$12.19, given that large-lot subscribers received only 0.57 percent of the shares they sought.

"The return on margin financing is not encouraging. Investors will avoid doing so on the upcoming IPOs," said Steven Leung, director of institutional sales at UOB-Kay Hian.

DUOPOLY BUILDERS

Investors had rushed to buy IPO shares in the company because China Railway Construction and its duopoly rival, China Railway Group (0390.HK)(601390.SS), are beneficiaries of Beijing's heavy spending on a transport infrastructure that has been unable to keep up with the country's surging economy.

China Railway Construction's (601186.SS) Shanghai shares rose a weaker-than-expected 28 percent in their debut on Monday, from an IPO price of 9.08 yuan. The stock ended at 11.99 yuan on Thursday, 32 percent above its IPO price.