Hong Kong shares ended flat in weak Monday trade, as strength in local developers offset weakness in Chinese banks on fears that the sector could be exposed to more bad local government debt than previously expected.

Mainland Chinese markets gained, with the Shanghai Composite Index ending up 0.1 percent at 2,350.6 as turnover in A-shares sank to the lowest since Feb. 1.

The Hang Seng Index was flat, bouncing off support seen at 20,580, the March 7 low. The China Enterprises Index shed 0.6 percent. Midday turnover in Hong Kong was at its lowest since Jan. 16.

Hong Kong developers rose on easing worries that the territory's new leader may introduce measures to promote low-cost housing, a move that could eat into their profits.

We desperately need a positive catalyst if we are going to see any real strength from here, but it doesn't look like it will come from Chinese banks. We are going to see more fund raising in that sector, said Jackson Wong, vice-president of equity sales at Tanrich Securities.

China's biggest lenders were among the top drags on the Hang after a litany of negative developments at the weekend. Industrial and Commercial Bank of China (ICBC) lost 1 percent in Hong Kong ahead of its corporate earnings on Thursday.

The Chinese banking regulator has told lenders they have incorrectly classified about 20 percent of their outstanding local government loans, or about 1.8 trillion yuan ($286 billion) into the safest category of lending, Bloomberg reported on Saturday.

A reclassification of the loans would require the banks to set aside more money in loan-loss provisions, which may in turn eat into earnings and could suggest corporate earnings currently being reported could be worse.

China Construction Bank (CCB) shed 1.2 percent in Hong Kong after the world's second-largest lender reported worsening credit quality and lower fee income in the fourth quarter as China's move to steer its economy towards a soft landing squeezed the financial services industry.

Fund-raising fears also hit the Chinese banking sector after China Minsheng Bank announced plans to raise up to HK$11.32 billion ($1.46 billion) in a new share placement in Hong Kong, priced to a discount of 4-7 percent from Friday's close of HK$7.15.

Trading in both Minsheng's Hong Kong and Shanghai listings was suspended on Monday.

POST-ELECTION HIGH BUOYS HONG KONG DEVELOPERS

Hong Kong developers drove gains on the Hang Seng Index after slumping in the run-up to an election on Sunday in which pre-poll favourite Leung Chun-ying was chosen by a committee of 1,200 notables as the territory's next leader.

While investors were earlier worried Leung would push ahead with land and housing reforms to achieve affordable housing, several brokerages including Goldman Sachs and Citi said the concerns were overblown, adding that his proposed housing and land policies would not differ too significantly from the direction of the current administration.

New World Development Co Ltd jumped 3.8 percent, with some investors seen covering short positions after a 10.7 percent slump in March to last Frida that coincided with a surge in short selling interest in the stock.

Cheung Kong Holdings and Hutchison Whampoa , Hong Kong conglomerate names seen as barometers of the territory's economy, were the top two boosts on the Hang Seng Index, each up 2.4 percent.

Cheung Kong slumped more than 7 percent last week, while port-to-telecom Hutchison slipped 4.5 percent, helping them underperforming a 3 percent loss on the Hang Seng benchmark.