* HSI up 0.5 pct as profit-taking nudges it below 22,000
* Shanghai up 0.3 pct, index meets resistance
* Liquidity seen driving markets more than fundamentals (Updates to close)
By Nerilyn Tenorio and Claire Zhang
HONG KONG/SHANGHAI, Oct 15 (Reuters) - Hong Kong stocks stretched a rally into a third day on Thursday with a 0.5 percent advance, driving the key index above 22,000 points for most of the session before profit-taking nudged it off that level.
Banks, property and export-related stocks charged ahead, fuelled by ample liquidity from investments exiting the falling U.S. dollar, before pulling back as traders took profit.
In Shanghai, the key stock index edged up 0.31 percent, led by brokerages, on strong earnings and upbeat economic data indicating the economic recovery is on track.
But index movements on both bourses by midday met key chart resistance as worries about heavy new share supplies weighed on sentiment and profit-taking pressure mounted.
"It was very good in the morning, then profit-taking pressure began pushing prices down. Nobody was surprised, it had to start somewhere after the market accumulated so much gains," Jackson Wong, Tanrich Securities investment manager, said in Hong Kong.
Daniel Chan, senior investment strategist at DBS Bank in Hong Kong, said the market was being "driven more by liquidity than fundamentals".
"Some traders have begun taking profit, and downside pressure is now greater than the upside," he said.
The benchmark Hang Seng Index, which closed at a 14-month high on Wednesday, advanced a further 112.60 points to settle at 21,999.08, its highest closing level since Aug 7, 2008.
Turnover swelled to nearly HK80 billion ($10.6 billion) from Wednesday's HK$64.6 billion.
Index heavyweight HSBC Holdings rose 1.3 percent. Bank of China gained 1.81 percent and China Construction Bank advanced 1.49 percent.
The China Enterprises Index of top locally listed mainland Chinese companies was up 0.64 percent at 12,859.71, off a high of 13,046.07.
BUBBLE WARNING
Property stocks gave up early gains amid warnings of a bubble forming in the sector. The sub-index slipped 0.4 percent after posting gains of almost 2 percent. Cheung Kong ended only 0.3 percent firmer after gaining nearly 1 percent, but Sun Hung Kai lost 101 percent.
Poly (Hong Kong) Investments resumed trade after a suspension, jumping 8.32 to HK$9.63 after the property developer said it planned to raise HK$3 billion ($387.1 million) in a share placement to boost its capital. (http://www.hkexnews.hk/listedco/ listconews/sehk/20091014/LTN20091014594.pdf)
First Pacific resumed trading with an initial gain of 1.9 percent, before falling 4.91 percent to HK$5.04. The conglomerate said it planned to raise $282.3 million through the rights issue to expand its mining business in the Philippines and Southeast Asia. (http://www.hkexnews.hk/listedco/listconews/ sehk/20091015/LTN20091015002.pdfAsia.)
KEY CHART RESISTANCE
China's key stock index rose 0.31 percent, but stumbled at a key chart resistance level as the outlook for heavy share supplies weighed on sentiment.
The Shanghai Composite Index ended at 2,979.788 points, a four-week closing high, after rising as far as 3,014.260, breaching the psychologically important 3,000-point level for a second straight session.
Gaining Shanghai A shares outnumbered losing shares by 447 to 412, while turnover dropped to 110 billion yuan ($16.12 billion) from Wednesday's three-week high of 141 billion yuan.
Annual growth in China's broad M2 measure of money supply accelerated to 29.3 percent in September from August's 28.5 percent, while banks extended 516.7 billion yuan in new loans in September, up from 410.4 billion yuan in August, the central bank said on Wednesday. Both figures beat forecasts.
China also drew $63.8 billion in foreign direct investment in the first nine months of the year, down 14.2 percent from the same period of 2008, but an improvement from a 17.5 percent fall in the first eight months, while Chinese property investment growth quickened in September.
"Although the economic data seems positive, the outlook for more share supply could drain funds from the main board," said Wen Lijun, analyst at Nanjing Securities. "With additional batches of new start-up shares due to be issued, plus more share supply on the main board, the index could hover around key resistance at 3,000 points for days."
The official Shanghai Securities News reported that the second batch of companies to be listed on ChiNext, a Nasdaq-style bourse for start-ups expected to start trading this month, locked up 466.8 billion yuan in funds when subscriptions were taken this week, less than had been expected.
Guoyuan Securities, Hong Yuan Securities and Northeast Securities rose 2 to 5 percent after issuing estimates that nine-month net profit had increased by 50 percent or more.
China International Travel made a strong market debut, rising 45 percent from its IPO price to 17.08 yuan on an upbeat outlook for the travel market, after raising 2.6 billion yuan in an initial public offering last month.
Ping An Insurance climbed 1.7 percent to 56.21 yuan after saying that total nine-month premium income rose 34.6 percent from a year earlier to 133.5 billion yuan. (Editing by Chris Lewis)