HK shares fall for 2nd straight day in weak turnover

* HSBC drops on pessimistic U.S. Fed economic outlook

* Melco tanks after unit's weak results

* Gold stocks outperform as price of the metal rises

(Updates to close)

By Parvathy Ullatil

HONG KONG, May 21 (Reuters) - Hong Kong shares gave up 1.58 percent on Thursday, falling for a second straight day in shrinking turnover as confidence about a global economic recovery waned while weak first-quarter performance hit shares in Melco International.

Melco International (0200.HK), controlled by casino tycoon Stanley Ho's son, retreated 9.73 percent to HK$5.37 after its joint venture with James Packer, Melco Crown Entertainment (MPEL.O), posted a 55 percent drop in net revenue and a loss for the first quarter of 2009. The decrease was driven by an abnormally high win rate and greater rolling chip volume at the Altira Macau in the first quarter, the casino operator said.

Deutsche Bank downgraded the stock to "hold" from "buy" on Thursday, following a 170 percent run up in the share price in the past three months ahead of the opening of its new casino in Macau in June.

The benchmark Hang Seng Index .HSI was down 276.35 points at 17,199.49.

"Buying power has diminished and it looks like the rally has temporarily ended," said Alfred Chan, chief dealer with Cheer Pearl Investment.

Chan forecast the main index to drop to 16,000 points in the near term. The gauge is still up 20 percent from the beginning of the year, with investors betting on a recovery in the Chinese economy by the end of 2009.

Turnover shrank to HK$60.9 billion ($7.8 billion) from Wednesday's HK$73.9 billion.

HSBC (0005.HK) dropped 2.58 percent to HK$66.25, tracking losses in its Wall Street peers after the U.S. Federal Reserve cut its 2009 forecast for gross domestic product and raised its outlook for unemployment, tempering hopes that the world's largest economy was on the mend.

SHRINKING PREMIUM GAP

The China Enterprises Index .HSCE of top mainland companies fell 1.15 percent to 9,927.28, outperforming shares on the main index and the Shanghai Composite Index .SSEC as select stocks gained.

The premium gap .HSCAHPI between yuan-denominated A-shares listed in mainland China and their Hong Kong-listed peers continued to shrink, dropping to a four-month low of 26.75 percent on Thursday.