China, HK stocks retreat as investors brace for tough quarter

* SSEC -0.7 pct; CSI300 -0.9 pct; HSI -1 pct

* Slow 2018 growth foreshadows rocky year-start for economy

* Xi Jinping warns of ‘grey rhino’ and ‘black swan’ risks

HONG KONG, Jan 22 (Reuters) - Shares in China and Hong Kong fell on Tuesday as investors take stock of the country's weak economic outlook, which points to a difficult first quarter of 2019, with the impact of policy support expected later in the year. ** At the midday break, the Shanghai Composite index was down 0.7 percent at 2,591.37. ** China's blue-chip CSI300 index was down 0.9 percent, with its financial sector sub-index lower by 0.5 percent, the consumer staples sector falling 1.6 percent, and the healthcare sub-index down 1.9 percent. ** Chinese H-shares listed in Hong Kong fell 1.2 percent, while the Hang Seng Index fell 1 percent to 26,921.49. ** The smaller Shenzhen index was down 0.7 percent and the start-up board ChiNext Composite index was weaker by 1.2 percent. ** China must be on guard against unforeseen but extreme 'black swan' risks while fending off 'grey rhino' events, which are highly obvious yet ignored threats, President Xi Jinping said on Monday. ** Xi's warning came shortly after China reported its slowest growth in 28 years for 2018, amid the trade war with the United States and cooling domestic demand. ** In response, investors expect China to loosen monetary and fiscal policies to boost growth. But these policies "may take some effect but will not be able to stop economic growth from slowing," especially with the trade war hanging in the air, analysts at OCBC warned in a note on Tuesday. ** U.S. President Donald Trump attributed China's economic slowdown to U.S. trade policies in a tweet on Monday, and said it "makes so much sense for China to finally do a Real Deal, and stop playing around!" The two sides agreed to a 90-day truce in the trade war at the start of last December. ** It is "normal technical adjustment" for the Chinese stocks to ease after rallying in the previous session, and the wider trend of an equity market recovery stays intact, Wei Yi, an analyst at Kaiyuan Securities, wrote in a memo on Tuesday. ** As of Monday's close "the Shanghai Composite has broken through its 60-day and 90-day moving averages, two key technical pressure points." It may take time for the index to move further up, but once it breaks the 120-day moving average, there will be little downward pressure, Wei added. The index retreated below the 60-day barrier in Tuesday's trade. ** Around the region, MSCI's Asia ex-Japan stock index was weaker by 0.8 percent while Japan's Nikkei index was down 0.7 percent. ** The yuan was quoted at 6.8015 per U.S. dollar, 0.08 percent weaker than the previous close of 6.7961. ** The largest percentage losses in the Shanghai index were China Securities Co Ltd, down 7.5 percent, followed by Guangdong Rongtai Industry Co Ltd, losing 7.1 percent and Tonghua Dongbao Pharmaceutical Co Ltd, down by 6.7 percent. ** As of 04:00 GMT, China's A-shares were trading at a premium of 17.85 percent over the Hong Kong-listed H-shares.

Reporting by Luoyan Liu and John Ruwitch; Editing by Gopakumar Warrier