* Commodities slump on strong dollar, developers stay weak
* North Korea shelling of South adds to risk aversion
* Shanghai drops 1.9 pct to six-week low
* HK posts biggest loss in six months, falls to six-wk low
(Updates to close)
By Jun Ebias and Farah Master
HONG KONG/SHANGHAI, Nov 23 (Reuters) - Shares in Hong Kong and China fell on Tuesday as a stronger dollar prompted investors to dump metals and mining stocks, while Hong Kong developers extended losses on fears that new property curbs will slash earnings.
Investors, already edgy over Beijing's fight against inflation and Europe's debt crisis, were also rattled by news late in the session that North Korea had shelled a South Korean island, prompting a return of fire by the South.
The attack, the biggest by the North in years, sent investors fleeing to the safety of the U.S. dollar, further weighing on commodities prices and shares of resource companies.
"The market remains defensive and will be unsettled until year-end," said Howard Gorges, vice-chairman at South China Financial Holdings.
"We have a messy Europe and in addition we have this uncertainty on whether there will be another rate increase in China and where tightening measures will lead."
Investors continued to unload Hong Kong property shares on expectations their earnings would be hurt by a new stamp duty on residential transactions and other government measures to stem fast-rising real estate prices. The measures were announced on Friday.
The benchmark Hang Seng Index fell 2.7 percent, its biggest single-day percentage loss in six months, to 22,896.14 pointgs, its lowest in more than six weeks.
"The tension in Korea is adding to the negative sentiment and everyone is avoiding risky assets," said Jackson Wong, investment manager at Fulbright Securities.
The property sub-index dropped 3.7 percent and was seen falling further in coming sessions, dealers said.
Bigger developers Sun Hung Kai Properties Ltd , Hang Lung Properties Ltd and Swire Pacific Ltd were much more expensive than their peers.
Sun Hung Kai trades at 15.4 times forward 12-month price-to-earnings compared with the average 11.1 times for the sector, according to Thomson Reuters Starmine data. Swire Pacific is trading at 15.8 times and Hang Lung at 21.4 times.
Sun Hung Kai dropped 3.3 percent, while Hang Lung fell 3.2 percent and Swire shed 2 percent.
COMMODITIES DRAG CHINA LOWER
China's key stock index fell 1.9 percent to a six-week closing low, weighed down by metals firms and miners
The Shanghai Composite Index closed at 2,828.3 points, trading well below its 250-day moving average, now at 2,886 points. It fell by more than 3 percent at one point in early afternoon trade.
Recent falls may be overdone, with the 14-day Relative Strength Index (RSI) trading at 39, near oversold territory.
Retail investors, who account for more than two-thirds of turnover, piled into the stock market in October, sending volume to multi-year highs. They are now taking profits after the market started to slump in the wake of monetary tightening.
"Domestic inflationary pressures and the central bank's moves to tightening policy are the focus of investors," said Chen Shaodan, analyst at China Development Bank Securities in Beijing.
Chen said that overall capital flows into the market would be restricted by the central bank's moves to restrain liquidity. In the medium term, she expects capital to remain relatively ample due to investors speculating on yuan appreciation.
Zinc manufacturer Zhuzhou Smelter Group , one of the biggest losers on the Shanghai index, dropped 7.4 percent. Western Mining slipped 6.4 percent, while gold miner Zijin Mining dropped 3.9 percent.
Oil giant Sinopec Corp fell 2.2 percent, and was the biggest drag on the overall index given its size.
In Hong Kong, Sinopec lost 2.2 percent and rival CNOOC shed 3.4 percent.
Concerns about energy and mining shares were fuelled by an order by the National Development and Reform Commission that coal miners stabilise prices after the price of domestic coal surged 11 percent from September. [ID:nTOE6AL07B]
(Editing by Kim Coghill)
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