* Hang Seng Index down 0.4 pct, set to post 2nd weekly loss
* Shanghai down 0.2 pct, support seen around 2,655-2,700
* CNOOC slides 5.8 pct after conservative production forecast
* Tencent up 1.7 pct, extends gains this year to over 20 pct (Updates to midday)
By Vikram S.Subhedar and Chen Yixin
HONG KONG/SHANGHAI, Jan 28 (Reuters) - Hong Kong shares edged lower on Friday, extending losses since their strong start to the year, as news of a property tax in China hit developers and CNOOC pulled down energy counters.
The benchmark Hang Seng Index was down 0.4 percent at 23,683.97 by the midday trading break in light turnover, suggesting investors remain cautious.
Further weighing on sentiment was a choppy day for mainland markets with the Shanghai Composite Index down 0.2 percent as financials and real estate counters slipped after China launched its first-ever property tax in Shanghai and Chongqing.
"The most important reason for today's fall is investor caution over further policy moves," said Xu Yinhui, a senior analyst Guotai Junan Securities in Shanghai. "Investors sold property issues after they gained."
"Economic data will be published after the Lunar New Year holiday, adding to uncertainty," said Xu.
The cities of Shanghai and Chongqing introduced the mainland's first property tax for home buyers on Thursday as the government battles to curb record home prices and tame inflation.
Gemdale Corp, the second most active stock on the Shanghai market, dropped 1.2 percent. Shenzhen-listed China Vanke Co Ltd, the country's biggest developer, fell 1.1 percent.
Hang Lung Properties Ltd, the Hong Kong developer with largest exposure to the mainland market, fell 2.3 percent.
Mainland property prices have remained stubbornly high despite a slew of measures introduced by the authorities since last April.
Almost all 37 financial issues in Shanghai fell on concern over the property sector's outlook, with Hua Xia Bank Co Ltd falling 2.3 percent and Industrial Bank Co Ltd down 2.2 percent.
Weakness in the heavyweight financial sector has weighed on the market with the Shanghai Composite down 2.3 percent this year but the index has found near-term support in the 2,655 to 2,700 range, where a gap opened up in October 2010.The range was widely seen by market players as a key level for the index to hold and a breach could open the way for a deeper slide that could hit other regional markets, said analysts.
In Hong Kong, oil major CNOOC Ltd fell 5.8 percent, erasing all its gains over the past month, after the company gave a conservative production forecast for 2011.
Bucking the weaker trend, so-called "sunrise" industries such as automakers and science and technology outperformed after the Ministry of Industry and Information Technology said it would formulate a new plan to boost the sectors.
SAIC Motor Corp Ltd rose 2.8 percent in Shanghai, while Shenzhen-listed Guangdong Orient Zirconic Ind Sci & Tech Co Ltd was up 2.6 percent.
China's dominant internet company Tencent Holdings Ltd rose 1.7 percent in Hong Kong, extending its gain this year to more than 20 percent. (Editing by Chris Lewis)