Hong Kong and China shares fell on Thursday, pulled down by Chinese banks and developers on renewed fears of capital-raising in those sectors and by media reports that bank lending in February was lower than expected.
Investors took profits on growth-sensitive sectors that have led this year's rally after hopes of further easing soon were dashed by a government survey showing China's factories grew more than expected in February.
A private survey which showed smaller companies lagging the rebound spurred some gains among small- and mid-cap names that limited losses in the mainland, as investors bet Beijing would boost growth in the sector.
The Shanghai Composite Index reversed early gains to close down 0.1 percent as A-share turnover on the Shanghai bourse hit its lowest in a month, more than 50 percent less than the near one-year high recorded on Monday.
The China Enterprises Index of the top mainland listings in Hong Kong and the broader Hang Seng Index underperformed Asian peers, slipping 1.9 percent and 1.4 percent, respectively.
Funding pressures will check this year's steep gains in the share prices of Chinese developers, Alan Lam, Greater China equity analyst at Julius Baer, said.
Bank lending in China is down but funding demand probably remains strong in sectors that the government is trying to quell, Lam said, adding that investors' focus is turning towards the annual National People's Congress session that will start over the weekend for fresh policy cues.
He said the pace of monetary policy easing could be less intense than expected with Beijing looking like it would be comfortable with a lower economic growth target for the year, possibly below 8 percent.
On Thursday, Country Garden Holdings Co Ltd, the mainland's fifth-largest property developer by sales value, led percentage losses in the sector in Hong Kong, slumping 8.8 percent. Volume was more than 42 times its 30-day average.
Country Garden, which was up 21 percent in 2012 before Thursday, said it would raise HK$2.14 billion ($275 million) to fund capital expenditure by selling new shares to controlling shareholder Concrete Win Ltd. This sparked fears that others in the sector could do the same.
China Overseas Land & Investment Ltd was among the top drags on the Hang Seng Index, sliding 5.5 percent, while Evergrande Real Estate lost 8.1 percent.
LENDING, FUND RAISING FEARS HIT CHINA BANKS
Fundraising fears also hit Chinese banks after mainland media reported that Industrial Bank Co Ltd aimed to raise at least 25 billion yuan ($3.97 billion) by selling new shares to institutional investors.
Trading in Industrial Bank shares in Shanghai has been suspended since Feb. 28.
The mainland's largest lender, Industrial and Commercial Bank of China (ICBC) lost 1.9 percent in Hong Kong and 0.5 percent in Shanghai.
Mainland media reported that new yuan loans by Chinese banks for last month may total about 500 billion yuan ($79.45 billion) , well below market expectations of 650 billion yuan.
If the estimate is accurate, it would mark the second straight month in which new loans fell short of expectations. New loans in January were 738 billion yuan, below the anticipated 1 trillion yuan.
Resources names were the biggest underperformers in Shanghai, with gold stocks among the biggest drags after gold prices plunged 5 percent overnight. Zijin Mining Group lost 2.1 percent, slipping from its highest since last November.
The CSI500 Index <.CSI500), a gauge of small- and mid-cap names, was a relative outperformer, gaining 0.5 percent. Shanghai Belling Co Ltd, the index's top boost, was up the maximum 10 percent limit to its highest since last August.