* Hang Seng flat, Shanghai edges up on light turnover
* Chalco shares jump 5.5 pct on return to profit forecast
* Hutch eyes $6 bln IPO in S'pore for port unit; shares down
(Updates to close)
By Vikram S.Subhedar and Lu Jianxin
HONG KONG/SHANGHAI, Jan 18 (Reuters) - China shares inched higher on Tuesday while Hong Kong's Hang Seng Index ended little changed, but top aluminum producer Chalco jumped 7 percent after the company forecast a return to annual profits.
Shanghai's key stock index edged up 0.1 percent after finding support at a near-term chart level, while better-than-expected earnings from two banks helped alleviate concerns that tighter monetary policy will squeeze lenders' profits.
The index tumbled 3 percent on Monday after a hike in banks' reserve requirements and talk of a property tax in Shanghai spooked markets.
"Entering into 2011, the Chinese equity markets are as bumpy as last year, but the market could be overly worried this time," said Minggao Shen, head of China research at Citigroup.
Some analysts expect strong corporate earnings to support the market and shift investors' focus back to company profitability.
U.S. markets will resume trading later today and will see results from major banks such as Goldman Sachs and Citigroup , although markets will be focused on reaction to Apple , which also reports numbers, after its influential chief, Steve Jobs, said he would take a leave of absence.
In Hong Kong, Chalco shares finished 5.5 percent higher and were the top gainers on the benchmark after the company said it expected to return to annual profits for 2010 on the back of higher aluminum prices and cost reductions.
Hutchison Whampoa was the third most actively traded counter amongst Hang Seng index constituents after the company said it was planning a $6 billion listing in Singapore, the city-state's largest ever, for its port unit.
Hutchison shares slipped 2.4 percent on the day but have risen over 17 percent this year making them the second-best performers on the index behind Internet firm Tencent Holdings , which is up 19 percent.
CHINA SHARES EDGE UP
In Shanghai, a key support level on the charts and optimism over banks' earnings helped offset fresh signs of official measures to dampen bank lending to curb inflationary pressures.
The benchmark Shanghai Composite Index finished at 2,709 points and appears to have found temporary support at the crucial 2,700-point level after tumbling 3 percent to a three-month low on Monday.
Two mid-sized lenders, Industrial Bank and China Everbright Bank , said their net profits grew 39.5 percent and 65.88 percent, respectively, in 2010, boosting shares in the financial sector.
The official Securities Journal reported that the People's Bank of China had cut its 2011 lending target for banks by 10 percent from last year.
The PBOC announced a 50-basis point rise in bank reserve requirement ratios on Friday, which will take effect on Thursday and freeze an estimated 360 billion yuan ($55 billion) in a clamp down on excessive early-year bank lending.
"Market sentiment is very shaky. Few investors are buying," said a trader at a major Chinese brokerage in Shanghai. "Unless there is a decent increase in trading volume, the index should have limited to room to rise sharply any time soon."
Turnover of Shanghai A shares dropped to only 67 billion yuan ($10 billion), its lowest since Sept. 21 and down 36 percent from an already low 104 billion yuan on Monday.
Technically, the index could reverse the 80-point jump in early October, which became the prelude to a one-month rally boosted by optimism over cash inflows.
"As the market is quite bearish now, the index may have the potential to bridge the gap," said Wen Lijun, a senior analyst at Nanjing Securities. "That will push the index to test levels around 2,650 points and if these levels are shattered, the index will fall to 2,500 points."
On the upside, the 125-day moving average, now at 2,781 and seen by local investors as demarcation of a bullish or bearish trend, will serve as a stiff resistance, analysts said.
Among hot stocks on Tuesday, Industrial Bank closed up 1.8 percent and China Everbright Bank added 0.3 percent, pushing up most of the 16 banks listed on the Shanghai and Shenzhen stock exchanges along with them.
The banks' earnings bode well for the 2010 earnings reporting season that will last until April 30.
(Editing by Kim Coghill)
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