* Hong Kong falls 1.01 percent; Shanghai down 2.3 percent
* Banks lower in HK on loan growth concerns (Updates to midday)
By Donny Kwok and Farah Master
HONG KONG/SHANGHAI, Nov 12 (Reuters) - Shares in Hong Kong and Shanghai were lower by midday Friday, tracking softer Asian markets, with banks weighing on expectations of another interest rate rise by China.
China's benchmark Shanghai Composite Index was down 2.3 percent in volatile trading, with investors selling off large cap resources and financial issues.
"Futures have fallen a lot. In the past two days there has been a lot of volatility. The reason still uncertain - there are rumours of a possible interest rate rise," said Zhang Qi analyst at Haitong Securities.
The Shanghai Composite was at 3,076.3 points, after rising 1 percent on Thursday.
Analysts said greater volatility was expected for the index heading into year-end as the mainland authorities take steps to keep liquidity in the financial system in check, including this week's increase in bank reserve requirements.
Industrial and Commercial Bank of China Ltd was down 2.7 percent and Bank of China Ltd fell 1.7 percent.
Shanghai's sub-property index sagged 3.2 percent.
Volume jumped to 165 billion yuan (24.9 billion) from 141.1 billion yuan at midday on Thursday, sustaining a surge since the start of October.
An easing in oil prices on a stronger dollar gave investors reason to sell commodities, traders said.
"Trade volatility is likely to increase. Most prices have not finished adjusting in the short term, with the broader market set for a bout of profit-taking, but the problem is not big," said Cheng Yi, analyst at Xiangcai Securities in Shanghai.
"Investors still think large cap stocks are attractive, with banks and oil majors good for the medium term. The focus will be on new policy moves and how this will affect market liquidity," he said.
China Petroleum & Chemical Corp (Sinopec) rose 1 percent after being the heaviest drag on the index earlier in the morning. PetroChina Co Ltd gained 2.8 percent, after it posted its biggest intraday percentage move since September 2008.
Oil majors jumped in the last two days, boosted by the prospect of capital flooding into the domestic market after the United States' quantitative easing programme.
BANKS, RUSAL LOWER IN HK
In Hong Kong, the benchmark Hang Seng Index was down 1.01 percent at 24,450.77 at the midday trading break, with Chinese banks leading the slide on concern over long-term prospects.
The China Enterprises Index of top locally listed mainland companies was 1.68 percent lower.
"Concern of a further interest rate rise is putting pressure on Chinese banks and property," said Ben Kwong, director at KGI Asia. "Although a rate rise can lift interest margins, in the longer term, banks may do less lending and that may have an impact on business growth."
Brokers said the market was undergoing a "healthy" correction and expected the underlying tone to remain positive because of ample liquidity in the market.
Hong Kong-listed shares of Russia's United Company RUSAL Ltd was down 6.7 percent. During the morning it dropped about 9 percent to the lowest in three weeks after reporting a 55 percent drop in quarterly earnings..
China Construction Bank Corp (CCB) fell 1.2 percent after news that Singapore's Temasek Holdings would raise its stake in the Chinese lender by taking up Bank of America Corp's entire entitlement to the CCB's rights issue.
Agricultural Bank of China Ltd was down 1.4 percent, while Guangzhou Automobile Group Co Ltd eased 0.75 percent. The two companies will be added to the Hang Seng China Enterprises Index, effective December 2010.
Alibaba.com Ltd was down 1.2 percent. China's largest e-commerce company posted a record net profit for the third-quarter as extra services revenue buffered slowing user growth.
Geely Automobile Holdings Ltd fell 3.9 percent after it said it expected growth in the broader market to moderate next year as Beijing moves to cool the economy. (Editing by Chris Lewis)