Hong Kong shares slipped to a 2-1/2-month low, dragged by the heavily weighted banking sector as investors took a cautious stance ahead of Chinese economic data this week that will offer clues on possible policy easing.
Mainland Chinese markets reversed early losses, with traders citing rumours that Beijing could make it easier for small and medium-sized businesses to obtain loans. The China Securities Journal said there were also rumours of an imminent interest rate cut.
The Shanghai Composite Index rose 0.9 percent, while Hong Kong's Hang Seng Index shed 1.2 percent as the local market caught up with weak global markets reopening after a long weekend during which weak data from the U.S. and higher-than-expected inflation in China had dented risk appetite.
Turnover on both bourses were weak, suggesting investors were awaiting for more data before re-entering market in a big way. In Hong Kong, bourse turnover was 15 percent shy of its 20-day average. In Shanghai, it was 24 percent below average.
A gauge of Chinese financials listed in Hong Kong was among the bigger underperformers, slipping 1.3 percent, with China Construction Bank (CCB) the top drag on the Hang Seng Index, down 0.7 percent.
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The Chinese banking sector is kind of stuck at this point. March loan growth data and first-quarter GDP figures could give investors a better idea of what Beijing could do to boost growth, said Jackson Wong, Tanrich Securities' vice-president for equity sales.
Both markets were little swayed by mid-morning data on Tuesday that showed China swinging to a surprise trade surplus of $$5.35 billion in March as import growth eased from a 13-month peak.
Foreign exchange reserves, money supply and loan growth data are expected anytime from Tuesday to Sunday, with first-quarter GDP and March industrial output, urban investment and retail sales scheduled for Friday.
On Tuesday, exporter Li & Fung continued its downward spiral on lacklustre U.S. data, diving 4.4 percent to HK$16.44, barely holding above lows in February and March this year that formed a double bottom on the charts at about HK$16.40.
Li & Fung, which manages supply chains for retailers including Wal-Mart Stores Inc and Target Corp, has now slumped 16 percent since March 23 when it closed at its highest since last April.
Several brokerage upgraded Li & Fung after it posted forecast-busting 2011 earnings, largely on an improving U.S. economic outlook, but softer data over the past few weeks have raised fears demand could suffer as a result.
PROPERTY DEVELOPERS LEAD SHANGHAI INTRA-DAY REVERSAL
In Shanghai, strength in the property and small- and mid-cap (SMEs) sectors helped the benchmark index reverse midday losses. The CSI500, a measure of the SME stocks listed in Shanghai and Shenzhen, rose 1.2 percent.
Shares of Sunny Loan Top, a commodities distributor based in Ningbo, Zhejiang, which is a component on both the CSI500 and the Shanghai Composite, rose the maximum 10 percent.
Mainland media reported there were some rumours of a possible interest rate cut, leading to a reversal of losses in financials and growth-sensitive sectors and accentuating strength among developers.
Poly Real Estate, the fifth-largest developer in China by sales, rose 3.3 percent, while Shenzhen-listed China Vanke, China's top developer by sales, gained 2.4 percent.
Market observers said investors were betting on a consolidation in the sector that would benefit larger developers after local media reported an unlisted Hangzhou-based developer filed for bankruptcy protection.