* HSI +0.2 pct, H-shares +0.4 pct, CSI300 +1 pct
* Chinese banks strong, retail investors drive gains
* China property weak, home prices up 4th mth in 5
* AIA slides at resumption of trade after AIG sells stake
By Clement Tan
HONG KONG, Dec 18 (Reuters) - China shares advanced over the morning on Tuesday, lifting the Hong Kong market, with the financial sector strong as retail investors chased large cap counters on hopes that the current rally runs through into the new year.
In the mainland, the CSI300 of the top Shanghai and Shenzhen listings jumped 1 percent, while the Shanghai Composite Index gained 0.7 percent, putting both indexs on course for a third straight day of gains.
The Hang Seng Index went into the midday trading break up 0.2 percent, while the China Enterprises Index of the top Chinese listings in Hong Kong climbed 0.4 percent.
A 13 percent rally from a Dec 3 closing low has put CSI300 on track for a first annual gain in three years. The Shanghai Composite has jumped 11 percent over the same time period, but is still down 1.1 percent on the year.
"Banking stocks are regaining popularity with retail investors, who are getting increasingly optimistic after the rally we had in the last two days," said Cao Xuefeng, head of research at Huaxi Securities in Chengdu.
China Merchants Bank was up 2.3 percent in both Shanghai and Hong Kong, putting the share at its highest since May. Its Shanghai listing had been down 16.5 percent on the year on Dec. 3, but a 21 percent rally since then has pushed it into positive territory on the year.
Much of the rally in the Chinese banking sector this month has come after China's insurance regulator abolished limits for insurance firms investments in the country's banks, having previously prevented them from investing in more than two banks if they owned more than 5 percent of any single bank.
The rebounding A-share market also helped Chinese brokerages. Citic Securities rose 1.8 percent in Shanghai and 3.3 percent in Hong Kong.
Alcoholic beverage maker Wuliangye Yibin Co Ltd rose 0.7 percent in Shenzhen after China Securities Journal reported the company said its senior management has purchased 83,301 company shares, worth about 2.2 million yuan ($352,800).
Property plays underperformed after data showed home prices in China's 70 major cities rose for the fourth month in the last five, gaining 0.3 percent in November. The abiding strength of home prices made it unlikely that Beijing would relax property market curbs any time soon.
China Resources Land slid 1 percent in Hong Kong, while China Vanke shed 1.3 percent in Shenzhen, trimming its 2012 gains to 26.5 percent.
Vanke has lost 2.6 percent this week, and appeared set for its worst two-day loss in almost two months after the official Xinhua news agency said China's leaders decided at the annual economic policy setting conference over the weekend to maintain controls on the sector in the new year.
Asian insurance giant AIA Group declined 2.1 percent to HK$31 at the resumption of trade after American International Group sold its remaining stake in AIA for $6.45 billion.
The deal was was priced near its top end at HK$30.30 per share after it had been marketed at HK$29.65-HK$30.65 apiece.