* Hong Kong shares recoup losses from three-week low
* Shanghai slips on weak investor sentiment
* Alibaba rises on stake purchase (Updates to midday)
By Sui-Lee Wee and Lu Jianxin
HONG KONG/SHANGHAI, Sept 29 (Reuters) - Hong Kong shares rebounded from a three-week low on Tuesday, buoyed by an overnight rally on Wall Street, as investors scooped up shares of oversold stocks including banks and telecoms.
Brokers said the expiration of futures contracts also boosted heavyweights such as HSBC, as investors with long positions sought to prop up the market.
The benchmark index rose 2.25 percent, or 463.46 points, to 21,051.87, snapping three straight days of losses,
Turnover was HK$26.7 billion ($3.45 billion), compared with Monday's HK$25.7 billion.
The China Enterprises Index of top locally listed mainland Chinese stocks was up 2.41 percent at 12,035.34.
But steep valuations and an uncertain U.S. economic outlook could cap the rally in the short term, brokers warned.
"In October, I will be more pessimistic," said Conita Hung, head of equity research for Delta Asia Financial Group. "At this level, it's not attractive for buyers to enter the market. The upside is not much at this level."
Hung predicted the index to trade in a tight range around 21,000.
China's top e-commerce company, Alibaba.com, soared 6 percent after it agreed to buy a controlling stake in China Civilink (Cayman) in a deal that could be valued at up to $79.1 million to expand its customer base.
Zhongtian International, which has information technology and property development businesses, climbed 39 percent and was the highest percentage gainer in Hong Kong after the company said on Monday that it would raise HK$13.1 million ($1.69 million) through a private placement of new shares.
TC Interconnect Holdings, a printed circuit board maker, surged 32 percent and was the second-highest percentage gainer in Hong Kong after the company said on Monday that it had set up a joint venture with lighting company Orient Opto-Semiconductors Corp. to operate and manage energy-saving and lighting projects.
SHANGHAI DIPS
China's key stock index was down 0.91 percent at the end of the morning session, led by recently listed newcomers as investor sentiment remained depressed by heavy supplies of new shares, including initial public offerings on China's planned Nasdaq-style second board, ChiNext.
The Shanghai Composite Index ended the morning at 2,738.344 points after closing down 2.65 percent on Monday, weighed down as prospects also looked poor for its return from the eight-day National Day holiday that starts on Oct. 1.
Turnover of Shanghai A shares was thin at 35 billion yuan ($5 billion) on Tuesday morning, although that was up slightly from 32 billion yuan on Monday morning, with losing Shanghai A shares overwhelming gainers by 813 to 74.
The market's youngest stock, Metallurgical Corp of China, was the morning's most active stock, losing 0.71 percent to 5.56 yuan, approaching its IPO price of 5.42 yuan.
Another newcomer, China State Construction and Engineering Co, dropped 2.11 percent to 4.63 yuan.
The benchmark index has lost 7.5 percent so far this quarter, heading for its worst quarterly performance this year.
"Investors are worried that new share supply, including on ChiNext, will continue diverting funds from existing shares," said Gui Haoming, head of research at Shenyin and Wanguo Securities. "Given those worries, the market's outlook will remain weak right after the holiday."
Traders said they expected further declines in the index before and immediately after the holiday, with support at a three-month low of 2,639 hit on Sept. 1. Even with a technical bounce, the index could have great difficulty rising above 2,800 points ahead of the break.
State media said on Tuesday that the first set of 10 IPOs on ChiNext, expected to begin trade on southern China's Shenzhen Stock Exchange next month, had frozen a combined 784 billion yuan ($115 billion) in funds for subscriptions.
It said on Monday that a second set of nine ChiNext IPOs would be launched immediately after the holiday.
Glassmaker Lengguang Industrial, the morning's biggest gainer, bucked the market's downtrend and jumped its 10-percent daily limit to 11.33 yuan after it announced it would sell idle real estate assets worth 174 million yuan, which investors believed would boost its bottom line for the year.
Rival glassmaker Anhui Fangxing was the biggest loser, dropping by its 10 percent limit for a second straight day to 12.76 yuan after it said it would swap core glass-making assets for new business in the new materials sector.
Yangtze Power, the world's largest hydroelectric power generator, was flat at 13.34 yuan after it announced on Tuesday the completion of a takeover of all of its parent company's major assets, including power generators and debt.
State media reported that the restructuring could raise Yangtze Power's earnings per share by 51 percent in 2010, but overall weak market conditions deterred buyers, traders said. (Editing by Chris Lewis)