HK shares finish at 7-month high in 5th day of gains

* Stanchart soars on record Q1 results; HSBC gains on upgrade

* China Construction Bank slips on worries of stake selldown

* Turnover scales four-month high at HK$80.4 billion

* Analysts believe rally sustained by "late entrant" funds

(Updates to close)

By Parvathy Ullatil

HONG KONG, May 6 (Reuters) - Hong Kong shares rose 2.5 percent on Wednesday, to close at a seven-month high in a fifth straight winning session, led by financial stocks, on expectations that additional capital needs at U.S. banks will mostly be manageable. [ID:nN05459483]

Turnover swelled after European markets opened in the late afternoon session to scale a four-month high of HK$80.4 billion as foreign funds continued to buy into hopes for a quick economic recovery in the region.

"Its a tussle out there between funds who entered the market early and are now ready to take profit and the late entrants who expect a further upside to the market," said Peter Lai, director with DBS Vickers.

Some market watchers said the stocks were overbought, with the valuations of those on the main index topping 15 times their estimated earnings, and see the gauge meeting tough resistance at around the 17,000-point level.

The benchmark Hang Seng Index .HSI finished 404.49 points higher at 16,834.57, its best closing level since early January.

But China Construction Bank (0939.HK) extended Tuesday's losses on expectations of a selldown in H-shares as the lock-in on 13.5 billion shares owned by Bank of America (BAC.N) expires on May 7. The stock trimmed losses to 0.4 percent at HK$4.74 after dropping more than 4 percent earlier.

Investors largely expect the U.S. lender to sell the shares, which represent about a third of its 16.7 percent holding in Construction Bank, on reports Bank of America may need an additional $34 billion in capital. [ID:nN05514181]

"The news has been pretty detrimental to CCB's shares today. Now it seems almost positive that Bank of America will dump the shares," said DBS's Lai.

CITIC Pacific (0267.HK), another underperformer, dropped 2.4 percent to HK$12.88 after former chairman Larry Yung sold 60 million shares in the steel to property conglomerate for close to $94 million.

Earlier in the week, Li & Fung (0494.HK) sold shares to its controlling shareholder to raise $350 million, while Morgan Stanley sold shares worth $111 million in China High Speed Transmission (0658.HK).