HK shares drop 2.5 percent; flu fears hit airlines

(Updates to mid-morning)

HONG KONG, April 27 (Reuters) - Hong Kong shares dropped 2.5 percent on Monday with Chinese banks weighed down by worries of strategic investor exits in the near term, while concern over a potential widespread swine flu outbreak sent airline stocks diving.

Analysts said investors were mindful of the devastating inpact that a global flu pandemic could have in the midst of a recession in major world economies. Hong Kong seemed to take the news a little harder than other regional markets on Monday, given its past brush with Severe Acute Respiratory Syndrome (SARS), which sent the stock market down 10 percent between mid-February and late-April 2003.

"This is an economy which completely opens itself up to trade and tourism, so people are a little more fearful of the flu news here," said Andrew To, sales director with Taifook Securities.

"But the reaction hasn't been completely over the top; investors are watching to see how the disease spreads and what steps are being taken to contain it."

By 0345 GMT the benchmark Hang Seng Index .HSI was down 386.68 points at 14,868.14.

The world's largest lender by market value, Industrial & Commercial Bank of China (1398.HK), fell 3.8 percent on expectations of a possible sell-down when a large portion of shares of a foreign strategic holding emerge from a lock-in period on Tuesday.

Goldman Sachs (GS.N), Allianz (ALVG.DE) and American Express (AXP.N) can trade a part of their stakes in the world's most valuable bank and many investors expect them to cash out, at least in part. The lender is due to announce its first-quarter earnings later on Monday.

Other mainland bank shares also dropped on Monday, with China Construction Bank (0939.HK) down 2.3 percent. Bank of America can sell a portion of its shares in China's No.3 lender early in May.

Li Ka-shing's Hutchison Telecommunications (2332.HK) dropped 44.9 percent to HK$1.34 as shareholders who buy the stock from Monday ownwards will not be eligible for shares in the company's newly spun-off unit, which will hold its Hong Kong and Macau telephone business following a separate listing. [ID:nHKG37583]

The China Enterprises Index .HSCE of top mainland companies was 3.1 percent lower at 8,702.78.

Yanzhou Coal (1171.HK) fell 5.7 percent to HK$7.13 after the coal miner lowered its 2009 sales target by 6.7 percent from its 2008 sales volume after reporting a 48.5 percent drop in first quarter profit.

FLU FEARS MAKE AIRLINES FEVERISH

Worries about a global swine flu pandemic boosted pharmaceuticals stocks while beating down pork product makers, trade, travel and tourism stocks.

China Pharmaceuticals (1093.HK), which makes antibiotic finished drugs on the mainland soared 15.3 percent, while drugmaker Guangzhou Pharmaceutical (0874.HK) advanced 8.8 percent. Wuyi International Pharma (1889.HK) was among the biggest percentage gainers on the exchange with an 29.6 percent jump.

Yurun Food (1068.HK), a manufacturer of pork products, dropped 7.7 percent, while conglomerate China Resources Enterprises (0291.HK), which has a pork producing unit, fell 4.6 percent. Analysts said this was a knee-jerk reaction to widespread concern about the virus.