Hong Kong shares set to fall; telecoms in focus

HONG KONG, June 3 (Reuters) - Hong Kong shares are expected to fall on Tuesday after a slew of negative news from U.S. financial markets, including downgrades of three big securities companies and the outser of Wachovia's chief executive.

But losses are likely to be trimmed by investor interest in Chinese telecom stocks which will resume trading today after the announcement of two mega deals on Monday.

Wireless carrier China Unicom (0762.HK) said it was paying $24 billion to take over fixed-line operator China Netcom and selling off its underperforming CDMA network to China Telecom (0728.HK) for more than $15 billion.

Shares in all three companies have been suspended from trading since May 23.

"All eyes will be on the Chinese telecom stocks, particularly China Mobile (0941.HK), which saw quite a lot of short covering on Monday. The Index may get some support from these stocks," said Steven Leung, director at UOB Kay Hian.

The benchmark Hang Seng Index closed Monday 1.2 percent higher at 24,831.36 boosted by a rally in Chinese financial stocks and China Mobile.

U.S. stocks dropped on Monday on renewed worries that the credit crisis is far from over after Standard & Poor's cut its debt rating on Lehman Brothers LEH.N, Morgan Stanley (MS.N) and Merrill Lynch MER.N. [ID:nN02309107]

STOCKS TO WATCH

* Other stocks in focus today include China Merchants Bank (3968.HK) and Wing Lung Bank 0096.HK after the mainland's sixth largest lender said it would pay $156.50 per share to buy 53 percent of a the local lender. The deal values Wing Lung at $4.66 billion or 2.9 times its 2007 book value.

Shares in both lenders will resume trade today after being suspended since Friday morning.

* China Southern Airlines (1055.HK) said on Tuesday it planned to set up a 75 percent-owned cargo joint venture with Air Bleu Ltd, a firm controlled by Air France-KLM Group (AIRF.PA).

* Industrial and Commercial Bank of China, the world's largest lender by market capitalisation, may also post gains today on reports that the Hong Kong securities watchdog has permitted it to set up an investment banking operation in the city to handle the listings of large mainland firms. ---------------------MARKET SNAPSHOT @ 00:22 GMT ----------------

INSTRUMENT LAST PCT CHG NET CHG S&P 500 .SPX 1,385.67 -1.05% -14.710 USD/JPY JPY= 104.37 -0.04% -0.040 10-YR US TSY YLD US10YT=RR 3.973 -- 0.006 SPOT GOLD XAU= $891.50 0.22% 2.000 US CRUDE CLc1 $127.67 -0.07% -0.090 DOW JONES .DJI 12503.82 -1.06% -134.50 ASIA ADRS .BKAS 164.56 0.35% 0.58 ------------------------------------------------------------------ FACTORS TO WATCH: * Nikkei falls 1.1 pct on stronger yen, Wall St loss [.T] * US stocks-Credit concerns flare up, sending Wall St lower [.N] * STOCKS NEWS ASIA-Market factors, main events [STXNEWS/ASIA] * Oil rises as hurricane season start rallies natgas [O/R] * Yen edges up on renewed credit crisis concern [USD/] * For upcoming Hong Kong events, click on [HK/DIARY] * For Hong Kong press digest, click on [PRESS/HK]

KEY HK ADR MOVERS (by % change)

China South Air (ZNH.N)(1055.HK) -2.12

China Eastern Air (CEA.N)(0670.HK) -1.74