HK, China shares decline, led by banks

(Updates to midday)

HONG KONG, July 8 (Reuters) - Chinese bank stocks led the pullback on both the Hong Kong and the Shanghai markets on Wednesday as investors worried that China may backtrack on its easy monetary policies following a strong surge in new lending in the first half.

Senior regulators in China on Tuesday warned that the country's massive infrastructure lending was posing increasing risks for the banking system. [ID:nPEK15595]

Bill and bond yields had been rising recently on signs that the central bank was starting to tighten its liquidity policy, with worries over a possible policy shift also weighing on the stock market, analysts in Shanghai said.

In Hong Kong, China Construction Bank (0939.HK) led losses, dropping 2.6 percent to HK$5.58, while in Shanghai the country's biggest lender, Industrial & Commercial Bank of China (601398.SS) fel 4.42 percent to 5.19 yuan.

China Merchants Bank (3968.HK) (600036.SS) dropped 2.4 percent in Hong Kong and 3.9 percent in Shanghai. China's sixth-largest lender is planning a rights share offer to raise about $3 billion before year-end, as it seeks to boost its capital after overpaying for a recent acquisition, investment banking sources told Reuters on Wednseday.

Here are the index moves and major stocks on the move in both markets my midday-

HONG KONG

* The benchmark Hang Seng Index .HSI was down 1.7 percent at 17,560.97, heading for a third straight day of losses as talk circulated about the need for a second round of stimulus spending in the United States, stoking fears the economy was not yet on the road to recovery.

* The China Enterprises Index .HSCE, which represents top locally listed mainland Chinese stocks, fell 2 percent to 10,464.07.

* China's largest shipping conglomerate China Cosco (1919.HK) slid 5.1 percent after the dry bulk shipping gauge fell for a fifth straight session on worries that demand to ship iron is slowing. Another bulk carrier, China Shipping Development (1138.HK), sank 4.7 percent to HK$9.24.

The Baltic Dry Index .BADI which measures changes in the cost of shipping key commodities fell 4.7 percent overnight.

* Chinese property stocks pulled back on worries that a clampdown on lending for second-home buyers in Hangzhou, aimed at cooling the property market, may spread to other major cities.

Banks in Hangzhou are required to strictly apply a 40 percent, up from 20 percent, down-payment rule for second home purchases after property prices in Hangzhou rose 20 percent over the past three months, Chinese newspapers reported.

* China Overseas Land (0688.HK) fell 5.9 percent, while Shimao Property (0813.HK) gave up 7.7 percent. But analysts viewed the move as a temporary setback for the property sector.

"The new move might affect volume growth but at a moderate rate. Second or multiple homebuyers will continue to view property purchase as a way to hedge against inflation risks amid low interest rates," said Carol Wu, analyst with DBS Vickers.

* Energy stocks continued to correct as oil fell towards $62 per barrel on Wednesday, on course for its sixth consecutive fall and the longest losing streak since mid-December, after data showed larger-than-expected builds in U.S. products stocks, reflecting little sign of a recovery in oil demand.

Asia's largest oil and gas producer PetroChina (0857.HK) was down 2.6 percent, while offshore oil specialist CNOOC (0883.HK) shed 1.6 percent.

SHANGHAI

* The Shanghai Composite Index .SSEC ended the morning down 2.17 percent at 3,022.275 points, extending Tuesday's 1.13 percent fall, as bank shares dived.

* Losing Shanghai A shares outnumbered gainers by 711 to 198, while turnover in Shanghai A shares dropped to 85.9 billion yuan ($12.6 billion) from Tuesday morning's 96.7 billion yuan.

* Domestic media, including the International Finance News, on Wednesday reported that the China Securities Regulatory Commission was carrying out checks on details of mutual fund trades and sales.

* Analysts said the checks were linked to news that Beijing-based China Asset Management Co, the country's biggest fund firm, had reported strong demand for a new index fund. The fund had already attracted over 10 billion yuan on Monday on its first day of subscriptions. [ID:nPEK98279]

* "Hot fund sales seem to recall 2007's bull run. Concerns over recent large rises in the index, plus weak overseas markets, triggered profit-taking," said Haitong Securities analyst Zhang Qi.

* The property sector was also weak, with Vanke (000002.SZ) sinking 1.77 percent to 13.84 yuan.

* Coal shares were hit after recent lower oil prices. China Shenhua Energy (601088.SS) lost 1.61 percent to 32.30 yuan after sliding 2 percent on Tuesday.

The most heavily-weighted stock on the index, PetroChina (601857.SS), dropped 2.56 percent to 14.44 yuan after losing 2.2 percent on Tuesday. U.S. crude futures extended drop towards $62 per barrel on Wednesday. (Reporting by Parvathy Ullatil in HONG KONG and Claire Zhang in SHANGHAI; Editing by Ben Blanchard and Chris Lewis)