* HSI at 7-week low, HSBC hits 10-year trough
* Standard Chartered hit after chairman quits
* China steel, auto stocks lifted by rescue measures
* China Eastern jumps on talk aircraft orders may be cut
(Updates to close)
By Parvathy Ullatil
HONG KONG, Jan 15 (Reuters) - Hong Kong shares dropped 3.4 percent to a seven-week low on Thursday, as the global credit crises hit the spotlight again sending shares in HSBC 0005.HK to a 10-year low and wiping out nearly $11 billion of the bank's market capitalisation in a two-day slide.
But the main index, which slipped below 13,000 points earlier, closed off lows helped by short covering in select Chinese financials which have corrected sharply in the last week.
The Hang Seng Index .HSI ended the morning session points 461.65 points lower at 13,242.96 off its session low of 12,904.05.
“The honeymoon period is over and the credit crises is back in focus. The quarterly earnings which start in February/March will probably signal the second wave of the tsunami,” said Peter Lai, director with DBS Vickers.
Mainboard turnover dropped to HK$49.4 billion from HK$66.2 billion by midday Wednesday.
Concerns over steep losses this year and signs of a mounting recession beat down stocks across the board with only 132 of the total 1,097 issues trading higher on Thursday.
China Enterprises Index .HSCE of top mainland stocks fell 2.5 percent to 7,042.36 but losses were cushioned by gains in steel stocks after China vowed to stop expansion in sector, mitigating overcapacity fears.
Rechargeable battery maker BYD Company 1211.HK gained 1.9 percent after China announced sweeping steps to prop up its auto industry, which has been battered by the economic downturn. Amid other measures like sales tax reductions, China also introduced funding for electric and alternative fuel vehicles.
GLOBAL BANKS SLIDE
HSBC shrank 5.7 percent to HK$66, still reeling from a Morgan Stanley report that cut its earnings estimates and target price and warned that the UK-based lender may need $20 billion to $30 billion to shore up its capital.
“Investors are worried about the dividend cut HSBC will announce and also its need to raise money,” said Patrick Shum, strategist with Karl Thomson Securities.
“The stock may fall to HK$58 before its rebounds a bit but it is already oversold and long term investors looking to hold the stock for 2-3 years should get in now,” he said.
Shares in London-based lender Standard Chartered 2888.HKSTAN.L dived 6.7 percent on Wednesday, underperforming other regional banking stocks after Mervyn Davies stepped down as chairman of the Asia-focused bank.
Davies, who led the bank as chief executive from 2001 to 2006 and is credited with playing an important role in restructuring the bank following the setbacks it suffered during the Asian financial crises of 1997-1998, will take up a role as UK minister for trade and investment.
“This is nonetheless an unexpected if not unwelcome development, amidst unsettled markets and uncertain macro outlooks for several of Standard Chartered’s key markets,” said Goldman Sachs analyst Roy Ramos.
China Southern Airlines 600029.SS, the country's largest carrier by fleet size, fell 2.3 percent after the air carrier said it estimated it would report a loss for 2008. Losses were limited by a 10 percent slide in the stock in the past week.
The airline blamed its poor performance on the slowdowns in the global and Chinese economies, which cut its passenger volume growth to single digits for the first time in five years, as well as high domestic fuel prices during the year.
Rival Air China 0753.HK dropped 8.1 percent.
But China Eastern Airlines 0670.HK soared nearly 11 percent on Thursday on talk that it may sell stakes in smaller regional carriers and was likely to trim or delay new aircraft orders. (Editing by Kazunori Takada) (firstname.lastname@example.org; +852 2843-6415))
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