China stocks fall on U.S. trade tensions; set for weekly gain on recovery hopes

* SSEC -0.4%, CSI300 -0.4%, HSI -0.2%

* HK->Shanghai Connect daily quota used 0.6%, Shanghai->HK daily quota used 3.6%

* FTSE China A50 -0.3%

SHANGHAI, Dec 4 (Reuters) - China stocks fell on Friday, weighed down by escalating Sino-U.S. trade tensions, but were set for weekly gains on the back of data that pointed to a recovery in the world’s second-largest economy.

** The CSI300 index fell 0.4% to 5,038.18 points at the end of the morning session, while the Shanghai Composite Index lost 0.4% to 3,430.03 points.

** Leading the decline, the CSI300 financials index dropped 1.8% by midday.

** The United States on Thursday added China’s top chipmaker, SMIC, and oil giant CNOOC to a blacklist of alleged Chinese military companies, a move likely to escalate tensions with Beijing before President-elect Joe Biden takes office.

** Chinese state media warned that some damage to Sino-U.S. ties is “beyond repair” amid a new wave of counter-China measures by the Trump administration.

** The CSI has gained 1.2% so far this week, while SSEC added 0.6%, both posting their third weekly rise on upbeat data.

** Data on Monday showed China’s factory activity expanded at the fastest pace in more than three years in November, while growth in the services sector also hit a multi-year high.

** Besides recovery hopes, analysts said low valuations were a key factor as investors shifted to stocks in traditional industries.

** “Chinese mutual funds could turn more to financial and other traditional players for now, which provide more safety margin given their valuations,” said Yan Kaiwen, an analyst with China Fortune Securities.

** Yan said the U.S. blacklisting of SMIC and CNOOC could have limited impact on the A-share market now.

** In Hong Kong, the Hang Seng index dropped 0.2%, to 26,686.54 points, while the Hong Kong China Enterprises Index lost 0.1%, to 10,580.42. (Reporting by Luoyan Liu and Andrew Galbraith; Editing by Ramakrishnan M.)