* China banks sink after Bank of America cuts stake in CCB
* Telcos retreat further after 3G licences issued
* Shanghai Electric slides after cuts profit forecast
* Turnover at highest since September 2008 (Updates to close)
By Parvathy Ullatil
HONG KONG, Jan 7 (Reuters) - Hong Kong shares dropped 3.4 percent on Wednesday as China Construction Bank (CCB) 0939.HK slid after Bank of America sold down its stake while telecom stocks retreated after Beijing handed out long-awaited 3G licences.
Turnover swelled to HK$90 billion ($11.6 billion), its strongest since September 2008, but Hong Kong shares underperformed most regional rivals, which were boosted by hopes for an economic recovery later this year.
The Hang Seng Index .HSI finished 522.05 points lower at 14,987.46 points after testing a three-month high at the open.
China Mobile 0941.HK fell 5.5 percent to HK$78.45 after Beijing handed out the long-awaited licences for next generation (3G) mobile networks Wednesday afternoon. [ID:nPEK344361].
The world’s largest telecom has been granted the licence for the untested homegrown TD-SCDMA network which is expected to be more costly and complicated to roll out than proven technology that Unicom and China Telecom will using.
“Buy on rumours, sell on news; that’s what is going on with the Chinese telecom companies,” said Peter Lai, director with DBS Vickers.
“There are worries that the 3G networks which call for a tremendous investments may put a drag on telecom shares,” he said.
The spending on network equipment by the three telecom carriers is pegged at $41 billion over the next two years.
Taiwanese handset maker Foxconn International Holdings 2038.HK, which was 2008's worst performing blue chip, jumped 5.4 percent, taking its total gains since the beginning of the year to more than 50 percent.
CITIC Pacific 0267.HK, another stock that was hammered down in 2008 after revealing a $2 billion hedging loss, climbed 6.4 percent.
EQUITY SELL-DOWNS WEIGH ON BANKS
“Investors are quite bearish about Chinese banks in the first half of 2009 with the central bank expected to cut interest rates further, piling on pressure on earnings,” said Patrick Shum, strategist with Karl Thomson Securities.
“And strategic investors will continue to sell their shares as they need the money,” he said.
Bank of America sold more than 5.6 billion shares, or nearly 13 percent of its holding, in Construction Bank at HK$3.92 apiece, a 12 percent discount to the stock’s last closing price.
The China Enterprises Index of top locally listed mainland Chinese firms .HSCE slipped 4.6 percent to 8,244.68, weighed down by losses in banking shares.
Shares in Semiconductor Manufacturing International Corp (SMIC) 0981.HK gained 2.9 percent after sources said China's top contract chip maker was discussing the possibility of selling a strategic stake to Intel Corp INTC.O. [ID:nSHA25260]
Shares in power equipment maker Shanghai Electric Group 2727.HK slid 13.2 percent after it cut its net profit forecast for 2008. [ID:nHKG3556].
The company said late on Tuesday its net profit for 2008 may come in 10 percent to 13 percent under its original 2.9 billion yuan ($424.2 million) forecast made last November as customers deferred delivery of its products. ($1=HK$7.752) (Editing by Lincoln Feast)