(Reuters) - China shares started the new year on the backfoot on Wednesday as Premier Wen Jiabao's warning of a difficult period ahead for the economy gave little comfort to domestic investors already suffering from a 2-1/2 year slump on the mainland markets.

The Shanghai Composite fell 1.4 percent, dragging down stocks in Hong Kong, which gave back about a third of Monday's gains. The Hang Seng index closed down 0.8 percent.

After a period in which Chinese authorities had sought to cool credit and overall high growth rates, Wen said the first quarter of 2012 would be difficult for the world's No.2 economy, according to comments published on the government portal www.gov.cn overnight.

Wen said there would be policy tweaks as slowdown concerns intensify, but hinted the government is not ready to carry out another massive stimulus programme as it did during the 2008/09 global crisis.

Chinese shares have underperformed Asian peers for two successive years as Beijing tightened policy to rein in inflation and red-hot property prices. The Shanghai Composite ended 2011 down over 21 percent.

There are plenty of people out there thinking there is more downside as Premier Wen warns China faces a difficult Q1, said a Hong Kong-based trader at an American brokerage, adding that the property sector remained a focus for short-selling in Hong Kong.

Average home prices in key Chinese cities edged down in December, the fourth consecutive monthly decline in the face of government measures to curb speculation in the property market.

Conglomerate Swire Pacific was the weakest performer among blue-chips in Hong Kong as investors sold the stock ahead of the spin-off of the company's property arm. Swire shares tumbled 14 percent in over twice their average 30-day traded volume.

The company's property arm own and operates commercial property in Hong Kong including retail malls and offices.

The key thing about the property arm is the rental income which smooths out any volitility in Swire's other businesses, said the trader, adding that the spinoff leaves the company a conglomerate focused on aviation, shipping and beverages, all of which are facing a tough year.

Swire was the biggest drag on the Hang Seng, which had gained 2.4 percent on Tuesday.

I think there were some people who were getting ahead of themselves yesterday. There is a complete lack of momentum right now, and at current levels investors don't have much incentive to chase gains, said Alex Wong, director of asset management at Ample Finance Group.

Shanghai-listed shares of coal majors China Shenhua and China Coal Energy fell 2.9 percent and 5 percent, respectively, while financials remained weak with insurer China Life shedding 1 percent.

Chinese oil majors remained firm, however, extending their gains from the previous session as oil prices held steady, supported by fears of possible supply disruptions from Iran and upbeat economic data from the United States and China.

PetroChina shares rose 1.2 percent while CNOOC rose 0.7 percent in relatively healthy volumes.

Growth in worldwide factory activity, particularly in the United States, where manufacturing growth was at its fastest pace in six months, helped some beaten-down cyclical stocks.

Shipping counters China Merchants and Cosco Pacific rose 1.7 percent and 3.4 percent, respectively. Both stocks signficantly underperformed the broader markets last as fears over a global recession hit the shipping sector.

Cosco shares are down 43 percent from a three-year high hit in April 2011.