Hong Kong shares closed at their lowest level in nearly five months after tepid results of a private survey on Chinese industry did little to tempt nervous investors back into the market.

The Hang Seng Index ended 0.6 percent down at 18,666.4, the lowest close since Jan. 6. The index is now up 1.3 percent on the year. Thursday's turnover was 10 percent below the 20-day moving average.

Europe's debt problems also kept investors away, with signs that the region's leaders were unable to deliver meaningful measures to resolve the crisis, heightening the risk of Greece leaving the currency bloc.

The HSBC Flash Purchasing Managers Index, the earliest indicator of the strength of China's industrial sector, retreated to 48.7 in May from 49.3 the month before, pointing to lingering weakness even as policymakers seek to shore up growth.

Its impact on markets was not significant, partly because worse than expected official April data had stunned markets, with benchmark indices in Hong Kong sinking more than 7 percent since then.

Mainland Chinese markets were also weaker, with the large cap-focused CSI300 Index down 0.8 percent. The Shanghai Composite Index shedding 0.5 percent in bourse volume that was 16 percent below its 20-day average.

The China Enterprises Index of the top Chinese listings in Hong Kong slipped 0.3 percent. It has fallen 13 of the last 16 trading days, while the Hang Seng has declined in 14 out of 16 sessions.

The MSCI China Index dropped 0.6 percent and is now down 0.2 percent on the year. According to Thomson Reuters I/B/E/S, it is currently trading at 8.6 times forward 12-month earnings, the lowest this year and a 30 percent discount to its average over the past decade.

Investors with a longer time horizon with a bigger tolerance for volatility could be persuaded, but it's not a good time now to buy on the dip despite historically cheap valuations, said Alan Lam, Julius Baer's Greater China equity analyst.

He added that low turnover and increased short-selling interest could prod Hong Kong markets lower. Shorting interest in Hong Kong accounted for almost 15 percent of total bourse turnover on Thursday, the highest since February 1999.

Chinese energy majors were broadly weaker. PetroChina lost 0.6 percent in Hong Kong and 0.5 percent in Shanghai. China Shenhua Energy Co Ltd declined 1.3 percent in Hong Kong.

CHINA INFRASTRUCTURE STRONG AGAIN

China Railway rose 2.4 percent in strong volume in Hong Kong, bringing its weekly gains to more than 11 percent on a succession of policy announcements. Deutsche Bank made the stock one of its top picks in an upgrade of the sector on Thursday.

On Thursday, the Chinese rail sector, along with other infrastructure ones, were bolstered by China Premier Wen Jiabao's statement the previous day - his second in four days - that Beijing would step up policy fine-tuning to support the economy.

Sany Heavy Industries gained 1.4 percent in Shanghai. Anhui Conch Cement jumped 2.7 percent in Hong Kong and 1 percent in Shanghai.

Corporate governance was under the spotlight in Hong Kong again.

Trading in shares of Chinese Estates Holdings was suspended on Thursday after the Hong Kong developer said its chairman and CEO Joseph Lau would face prosecution in a Macau court over alleged bribery and money-laundering.