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* HSI -1 pct, H-shares -1.6 pct, CSI300 -2.7 pct
* CBRC orders banks to up checks on underlying assets of WMPs
* State Council pledged to further liberalize interest rates
* Mid-sized Chinese banks lead tumble
By Clement Tan
HONG KONG, March 28 (Reuters) - China shares were headed for their worst loss in nearly a month on Thursday, with banks taking a hit after they were ordered to tighten control over wealth management products and improve transparency.
The move is China's latest in warding off potential risks to the financial system and comes after an instrument sold through Hua Xia Bank failed to pay its annualised return while China's CITIC Trust announced payment delay on its product late last year.
At 0206 GMT, the CSI300 of the leading Shanghai and Shenzhen A-share listings was down 2.7 percent, holding just above an intra-day low on March 19. The Shanghai Composite Index slid 2.2 percent. If losses persist, this will be their respective worst since March 4.
The Hang Seng Index was down 1 percent, while the China Enterprises Index of the top Chinese listings in Hong Kong lost 1.6 percent.
Four mid-sized banks were the leading drags on onshore Chinese indexes. Industrial Bank was down more than 8 percent, China Minsheng Bank slid 7 percent, while Huaxia was down almost 6 percent.
Minsheng tumbled 5.8 percent in Hong Kong, while Merchants Bank slid 4.2 percent in Hong Kong and 4.6 percent in Shanghai.
"The tightening of WMP (wealth management product) regulations is in line with our expectation, but timing is a little earlier than we had expected (we were expecting mid-2013)," May Yan, Barclays' top-rated Chinese banking analyst, said in a note to clients.
"We expect large banks to have lower WMP/asset ratio as well as less percentage of WMPs invested into non-standard credit assets than mid-size joint-stock banks," Yan added.
Banks were also under pressure after China's cabinet said it will unveil new measures to further liberalise interest rate and exchange rate markets later this year, stoking worries of an erosion in banks' net interest margins.
These latest government moves come after China's "Big Four" banks reported benign bad-loan ratios as brisk lending in fast-growing regions countered souring loans to overheated sectors on the country's east coast.
Shares of Industrial and Commercial Bank of China (ICBC) , which was the last among the "Big Four" to report their 2012 results on Wednesday, was down 1.9 percent in Shanghai and 1.3 percent in Hong Kong.