HK shares down for 4th day; Shanghai up on economic hopes

* Hong Kong hit by U.S. banks downgrades, flu fears

* China stocks buoyed by World Bank's GDP forecast

* Coal shares in Shanghai outperform (Updates to close)

By Nerilyn Tenorio & Claire Zhang

HONG KONG/SHANGHAI, June 18 (Reuters) - Hong Kong shares drifted into a fourth straight day of losses on Thursday, dragged by caution over ratings downgrades at U.S. banks and the spread of H1N1 influenza, while Shanghai stocks rose on optimism about China's economic recovery.

Traders locked in profit in Hong Kong, but they are expected to buy back select stocks again for 'window-dressing' purposes before they release their mid-year reports.

Property and bank stocks led the declines in Hong Kong, but financial shares in Shanghai were strong and coal shares outperformed the market.

U.S.-RELATED WORRIES

The benchmark Hang Seng Index .HSI finished the day's trade below the 18,000-point level, losing 1.7 percent or 307.94 points at 17,776.66. It hit a low of 17,655.82 earlier in the day.

"Today's fall was more related to what's happening in the U.S. than in China, because people here are cautious about the prospect of economic recovery," said Conita Hung, head of equity markets at Delta Asia Financial Group.

On Wall Street on Wednesday, gains in the Dow and the S&P 500 were kept in check after ratings downgrades hit U.S. banks, with Standard & Poor's citing expectations of more difficult operating conditions because of volatile financial markets and tighter regulation [ID:nLH666378].

But Hung pointed to the significance of the benchmark index holding above the 17,700 level, saying traditional fund managers who hold a lot of cash provided some market support with purchases of select stocks.

The China Enterprises Index .HSCE of top mainland companies dropped 277.84 points or 2.6 percent to 10,422.31.

Turnover thinned to HK$63.64 billion from Wednesday's HK$74.5 billion.

Top banks extended their losses, with ICBC (1398.HK) sliding 3.6 percent and Bank of China (3988.HK) retreating 2.9 percent. HSBC (0005.HK) lost 1.3 percent and China Construction Bank (0939.HK) dropped 2.6 percent.

* The financial sector sub-index declined 2.3 percent while property dropped 1.2 percent.