* Hong Kong shares recoup losses after hitting three-week low
* Shanghai slips on weak investor sentiment
* Alibaba soars after stake purchase
* China, Hong Kong stocks could fall in short term - analysts (Updates to close)
By Sui-Lee Wee and Lu Jianxin
HONG KONG/SHANGHAI, Sept 29 (Reuters) - Hong Kong shares rebounded from a three-week low on Tuesday, their biggest one-day percentage gain in more than a week, as investors scooped up shares of oversold stocks including banks and telecoms on an overnight rally on Wall Street.
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 2.06 percent, or 424.76 points, to 21,013.17, snapping three straight days of losses and posting its biggest one-day percentage rise since Sept. 17. Turnover was HK$49.5 billion ($6.39 billion), compared with Monday's HK$50.9 billion.
The China Enterprises Index of top locally listed mainland Chinese stocks was up 2.01 percent at 11,988.37.
The Hang Seng index, which touched a year high two weeks ago, has climbed 14 percent since the start of July.
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 7 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.
Blue-chips including HSBC and Industrial and Commercial Bank of China (ICBC) led gains in Hong Kong. HSBC rose 2.6 percent, while ICBC was up 3.3 percent.
Zhongtian International, which has information technology and property development businesses, climbed 28 percent and was the second-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 26 percent and was the third-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 closed 0.33 percent lower with recently listed newcomers actively traded, 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 at 2,754.54 points after closing down 2.65 percent on Monday, weighed down as the market's prospects also looked poor for its return from an eight-day National Day holiday that starts on Oct. 1.
Turnover of Shanghai A shares was thin at 74 billion yuan ($11 billion), its lowest since March 16 and down from 75 billion yuan on Monday. Losing Shanghai A shares overwhelmed gainers by 724 to 167.
The market's youngest stock, Metallurgical Corp of China, was the day's most active stock, ending up 1.43 percent at 5.68 yuan as bargain hunting emerged after a fall in the morning pushed it within reach of its IPO price of 5.42 yuan.
Another newcomer, China State Construction and Engineering Co, dropped 1.48 percent to 4.66 yuan.
The benchmark index has lost 6.9 percent so far this quarter, heading for its worst quarterly performance this year.
"With huge supplies looming in the markets, including ChiNext, the index should have room to fall further immediately after the holiday," said Zheng Weigang, head of investment at Shanghai Securities. "Funds are being diverted from existing shares."
Traders now expect further declines in the index immediately after the holiday, seeking support at a three-month low of 2,639 hit on Sept. 1. Even with a technical bounce, the index may 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.
In trading, glassmaker Lengguang Industrial, one of the day's top gainers, bucked the market's downtrend and rose 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 one of the biggest losers, 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, fell 0.15 percent to end at 13.32 yuan after it announced 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)