* China stocks down 1 pct, profit-taking on blue chips weighs
* HK off early gains to edge up 0.1 pct, property supports
* Foxconn dives on worse-than-expected 2010 net loss (Updates to midday)
By Yixin Chen and Clement Tan
SHANGHAI/HONG KONG, March 31 (Reuters) - Hong Kong shares fell back from early gains in choppy trading on Thursday morning, with gains in property counters offsetting losses as investors looked to finish dressing up their portfolios on the last day of the quarter.
The benchmark Hang Seng Index was up 0.1 percent at 23,474.11 by the midday trading break after opening up 0.7 percent. Hong Kong's main stock index gained 1.7 percent on Wednesday.
Foxconn International Holdings Ltd led losers and was down 5.7 percent by midday. It hit a 23-month low in early trade after announcing a bigger-than-expected 2010 net loss.
The benchmark Shanghai Composite Index lost 1 percent to 2,927.2 points, extending Wednesday's 0.1 percent decline, on profit-taking in blue chip stocks that have recently outperformed.
The Shanghai market has risen 4.2 percent in the first quarter, rebounding from last year's 14 percent fall. But the index largely lagged better-than-expected growth in listed companies' earnings on uncertainty over further monetary tightening.
Analysts widely expect the index to move between 2,800 and 3,000 points in the second quarter, helped by demand for stocks with reasonable or low valuations such as property and pharmaceutical companies.
"It will be hard for the index to make any sharp moves in the second quarter," said Cheng Yi, analyst at Xiangcai Securities in Shanghai. "We think we should focus on economic data, which may give some hints on government policy changes."
So far this year, the People's Bank of China has raised interest rates once, and bank required reserve ratios three times to a record high of 20 percent. [ID:nTOE71H069]
Cheng said unstable global markets and the impact from the Japan earthquake, had increased uncertainties for the domestic market, so investors may remain cautious in the second quarter.
A Reuters poll showed that Shanghai shares were set to rise further this year, recouping most of the losses logged in 2010, though concerns over monetary tightening could lead to a temporary dip next quarter. [ID:nTOE72L00Q]
The poll also showed that mutual funds suggest higher exposure to property stocks, which continued their recent bullish trend in Hong Kong on Thursday, with China Resources Land Ltd and China Overseas Land & Investment Ltd showing the way.
"Going into the second quarter, the valuations of China property counters are very attractive," said Lee Wee-Liat, Regional Head of Property at Samsung Securities (Asia) Ltd.
The Hang Seng's property sub-index is up 0.6 percent on the quarter, underperforming the main index's 1.9 gain.
But analysts expect property counters, particularly Chinese ones, to pick up further in the second quarter on expectations that physical transactions will pick up in high-demand second- and third-tier cities in China.
Local governments have indicated they are not damping price increases, but moderating them by pegging the pace of price increases to the rate of nominal GDP growth in individual cities.
"There are many who believe that second- and third-tier cities are going to affect their net margins, but that hasn't been the case," Lee said. (Editing by Chris Lewis)
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