HK shares fall as HSBC slides; CITIC rally fizzles

* Hong Kong shares fall to two-week low

* CITIC Pacific rally loses steam on governance issues

* HSBC drops on uncertainty over U.S. bank bailout plan

(Updates to midday)

By Jun Ebias

HONG KONG, Nov 13 (Reuters) - Hong Kong shares fell 6.6 percent to a two-week low on Thursday, as HSBC (0005.HK) slid on uncertainty over the U.S. bank bailout plan and HKEx (0388.HK) plunged after it reported a drop in quarterly earnings.

A rally in shares of CITIC Pacific (0267.HK) lost steam, as relief over a bailout by its parent gave way to worries over corporate governance and the outlook for the company's earnings.

The steel-to-property conglomerate rose as much as 17 percent before closing the morning up 2.5 percent after its parent said it would buy $1.5 billion worth of convertible bonds from the firm and assume some of its liabilities which arose from unauthorised foreign exchange contracts. [ID:nHKG218046]

"Investors will still avoid this company because of issues on corporate governance," said Daniel Chan, senior investment strategist at DBS Bank.

HSBC (0005.HK) tumbled 6 percent amid concern over whether the United States will succeed in its banking rescue plan after the U.S. Treasury backed away from using a $700 billion bailout fund to to buy bad mortgage debt from lenders.

"The U.S. Treasury's decision would have more impact on HSBC than Chinese banks because it (HSBC) has more exposure in the U.S.," said Paul Lee, analyst at Tai Fook Securities.

"Mainland banks did not have much money in debt markets overseas. But we are entering a global recession, if not depression, so banks are affected by the overall negative sentiment."

Top Chinese lender ICBC (1398.HK) fell 6.3 percent, China Construction Bank (0939.HK) lost 8 percent, while Bank of Communications (3328.HK) slid 9.3 percent.

The benchmark Hang Seng Index .HSI ended the morning session down 923.81 points at 13,015.28, extending a two-day 5.5 percent decline.

Mainboard turnover edged up to HK$29.2 billion ($3.7 billion) from HK$25.7 billion at midday on Wednesday.

Asia's biggest listed bourse operator, Hong Kong Exchanges & Clearing (HKEx) (0388.HK), tumbled 10 percent. HKEx said profit fell 43 percent in July-September, its second quarterly decline, due to sluggish trading volumes. [ID:nHKG191448]

BNP Paribas cut its target price on HKEx by 28 percent to HK$49.32 and its earnings forecast by 9 percent for this year and 3-12 percent in 2009 and 2010.

The China Enterprise Index .HSCE of top locally listed Chinese companies fell 7.3 percent to 6,617.41.

Local developers extended their losses on a bleak outlook for the Hong Kong economy, which is expected to have slipped into a recession in the third quarter. Top developer Sun Hung Kai Properties (0016.HK) lost 8.2 percent.

Resource stocks such as offshore oil producer CNOOC (0883.HK) fell 7.3 percent after oil prices slid 5 percent to $56 a barrel, their lowest since Jan 2007, and hovered at that level in Asian trade on Thursday.

Coal producer China Shenhua Energy (1088.HK) dropped 8.3 percent.

(Additional reporting by Donny Kwok; Editing by Anne Marie Roantree)