Hong Kong shares fell for a third-straight session on Wednesday, partly due to a cool reception to plans by a group of companies controlled by local conglomerate Hutchison Whampoa to acquire a UK gas company for $1 billion.
Chinese property developers sank as investors fretted about fresh signs suggesting Beijing could be taking more steps to curb rising housing prices.
The Hang Seng Index closed down 0.1 percent, bouncing off the day's low at 18,710.6 after European markets opened slightly higher after comments by a policymaker raised hopes for more European Central Bank action.
But strength in defensives and low turnover pointed to weakness as more corporate profit warnings surfaced in a reminder that China's slowing economy is hitting its companies more heavily than previously expected.
We are seeing people becoming more defensive going into the earnings season, said Hong Hao, chief strategist at Bank of Communications (BoComm) International Securities. A lot of them have been too bullish about a China recovery and are now reassessing.
The Chinese telco sector was strong. Hong Kong shares of China Unicom jumped 5.6 percent after Credit Suisse analysts rated the mainland's second-largest mobile operator as their top pick among Asian telcos.
Li Ka-Shing's Hutchison Whampoa was the top drag on the Hang Seng Index, shedding 1.6 percent.
Property developer Cheung Kong (Holdings) Ltd, an affiliate of Hutchison, said it had formed a joint venture with Cheung Kong Infrastructure Holdings Ltd, Power Assets Holdings Ltd and the Li Ka Shing Foundation Ltd to buy UK gas company Wales and West Utilities for 645 million pounds ($1 billion).
Cheung Kong Holdings slipped 0.9 percent while Power Assets shed 1.6 percent. Trading in Cheung Kong Infrastructure was suspended on Wednesday before markets opened.
Bain Capital-backed GOME Electrical Appliances Ltd tumbled 14.5 percent to an all-time low after China's second-largest home appliance retailer warned it expects a net loss for the first half of 2012, thanks to its e-commerce business.
Bank of America-Merril Lynch analysts, noting this will be GOME's first operating loss, said the peak season at the end of September and early October will be critical to any chance for a recovery this year.
BofA-ML reiterated its underperform rating and projected GOME's same-store sales growth to decline 25 percent in the second quarter, leading to a 18 percent decline for 2012.
GOME lost HK$0.11 to close at HK$0.65 on Wednesday, a shade off BofA-ML's new HK$0.68 target, which it lowered by 43 percent. GOME is down 64 percent so far this year.
PROPERTY WEAKNESS WEIGHS ON ONSHORE CHINESE MARKETS
In the mainland, weakness among property developers dragged the CSI300 Index of the top Shanghai and Shenzhen listings down 0.7 percent. The Shanghai Composite Index fell 0.5 percent to it lowest close since March 2009 in volume that neared 2012 low.
The state-run China Securities Journal reported on Wednesday that Beijing may raise transaction fees and taxes for sales of existing homes in a fresh bid to curb speculation.
Adding to the gloom, the housing bureau of the eastern city of Nanjing said that mainland news reports on Tuesday that the city was lifting home purchasing restrictions were a misunderstanding, according to local media.
The news had triggered strong gains for the sector in the A-share market on Tuesday, but Chinese property developers were among the bigger percentage losers on Wednesday in onshore and offshore markets.
This follows the China's State Council reiterating earlier this week that its crackdown on property speculation was here to stay by saying inspection teams would be sent to top cities to ensure restrictions on home purchases are enforced.
The Chinese Academy of Social Sciences has suggested that cancelling the mortgage rate discount for first time homebuyers and pre-sale practice are necessary moves to prevent a sharp rebound in home prices, according to local media.
The Shanghai property sub-index fell 1.9 percent. Poly Real Estate was down 2.5 percent, slumping to its fifth daily loss in six sessions.
Poly Real Estate shares are still up 34 percent in 2012, although investors have been taking profits in recent sessions after official data last week showed housing prices rising for the first time in nine months, sparking fears Beijing could clamp down further on the sector.