HK shares end 5-day rally but turnover at 5 wk high

* Turnover climbs to HK$49 bln, highest since Feb 5

* HSBC climbs ahead of shareholder vote on rights issue

* Tianjin Port Devlp plummets after merger announcement

(Updates to close)

By Parvathy Ullatil

HONG KONG, March 17 (Reuters) - Hong Kong shares snapped a five-session winning streak to drop 0.8 percent on Tuesday as some Chinese counters beat a retreat, but HSBC (0005.HK) stemmed losses, rising ahead of a shareholder vote on its rights issue.

Also dodging the downdraft, Air China (0753.HK) vaulted 7.8 percent to HK$2.48 after data showed that passenger traffic grew 19 percent in February. Its overall load in February rose 6 percent, which compares favourably with regional rivals Cathay Pacific (0293.HK) and Singapore Airlines (SIAL.SI), both of which have reported sliding traffic in the same month.

Merrill Lynch reiterated its buy rating on the stock and said China's flag carrier would turn a profit in 2009.

The benchmark Hang Seng Index .HSI closed 98.62 points lower at 12,878.09 as mainland heavyweights China Mobile (0941.HK) and China Life (2628.HK) succumbed to profit-taking pressure after the recent rally. The main index had risen over 14 percent in the past five sessions.

Turnover rose to its highest in more than five weeks at HK$49 billion, from Monday's HK$46.7 billion.

"The main driver of this rally has been operating profit forecasts from banks. People forget that the big worry is not the operations of banks but their balance sheet," said Alex Wong, director with Ample Finance.

Market analysts also warned that selling may resurface next week when the HSBC rights start trading on March 23 and again in April when a lock-in agreement for 12.1 billion shares in ICBC (1398.HK) expires.

"This was not a genuine sustainable rally, if anything it puts the bears in a better position and with more power to drive down the market," said Wong.

HSBC BULKS UP

HSBC (0005.HK) kept up its winning streak, helped by a rating revision from neutral to sell by Goldman Sachs, and as investors continued to cover short positions ahead of a shareholder vote on its $17.7 billion rights issue on Thursday.

The stock, which began trading without rights on March 12, jumped 2.9 percent to HK$41.15, recovering 35 percent from the 14-year low it hit last Monday.

Gains were also supported by a reassurance from the bank on capital adequacy and announcements from other major UK-lenders hailing a strong start to 2009. [ID:nHKG361773]

The China Enterprises Index .HSCE of top mainland firms fell 1.2 percent to 7,508.08 underperforming the 3 percent rally on the Shanghai Composite Index .SSEC.

Top insurer China Life (2628.HK), which surged 6.5 percent on Monday, pulled back 5 percent to HK$24. Credit Suisse cut its rating on the stock to neutral from outperform after the stock breached its target price of HK$25.

Shares in Tianjin Port Development Holdings (3382.HK) slid 13.3 percent to HK$1.95 after it said on Monday it was paying $1.4 billion for control of Shanghai-listed rival Tianjin Port Co Ltd (600717.SS). The stock had risen 38 percent in two weeks in anticipation of an announcement of the deal.

Shares in parent company Tianjin Port Development Holdings (0882.HK) dropped 4.1 percent to HK$2.55.

The merger is expected to help earnings at Tianjin Port Development but also brings with it significant capital expenditures to building new terminals, analysts said.

China Huiyuan Juice (1886.HK) fell 1.9 percent to HK$10.30 after China's Ministry of Commerce said it had the option to extend its review of Coca-Cola's US$2.4 billion takeover bid for the juice maker.

The stock is currently trading at a 16 percent discount to the proposed takeover price of HK$12.20 per share, as uncertainty looms over anti-monopoly scrutiny of the deal. The ministry said it could approve the deal by Friday or extend its review but gave no indication of which way it was leaning.

(Reporting by Parvathy Ullatil; Editing by Ken Wills)

(parvathy.ullatil@thomsonreuters.com; +852 2843-6415))

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