* Hang Seng up 0.2 pct in light volume; earnings boost banks
* Shanghai Comp slips 0.2 percent as insurers weigh
* Banks up on earnings; ICBC, AgBank lag
* Coal stocks drop for second day
* AIA shares debut on Friday in HK's largest ever IPO
(Updates to close)
By Vikram S.Subhedar and Farah Master
HONG KONG/SHANGHAI, Oct 28 (Reuters) - Hong Kong stocks ended slightly higher on Thursday as banking shares rose on the back of earnings optimism while insurers dragged Shanghai markets lower.
The benchmark Hang Seng index closed 0.2 percent higher, recovering slightly from Wednesday's sharp 1.9 percent drop. Turnover was down 23 percent compared with a day earlier and fell below HK$80 billion for the first time in over a month.
"The market is in bottom-fishing mode, but I don't see any strong buying interest yet," said Jackson Wong, investment manager at Tanrich Securities.
"I don't expect the market to move significantly from here until after the Federal Reserve meeting next week."
Market players will be keenly watching the trading debut of AIA Group on Friday morning in what will be Hong Kong's largest ever listing. Traders said gray market indications call for a 6 to 10 percent first-day gain.
Shares of mainland banks rose after Bank of China (BOC) and Agricultural Bank of China posted record third-quarter profits that pointed to a strong year-end for the sector.
BOC shares closed up 2.2 percent while larger rival China Construction Bank, which reports on Friday, rose 1.1 percent.
Banking shares have seen strong interest from investors since mid-September on robust loan growth, China's strong economy and as the broader markets rallied.
Some traders and analysts, however, are concerned trade in the sector was getting a little stretched, and are cautious about it in the short-term.
Thomson Reuters Starmine data showed not a single broker has a "sell" rating on any of the "big four" banks, suggesting that bullish sentiment on the sector may be overdone.
V.Anantha-Nageswaran, chief investment officer of Julius Baer said he does not believe Hong Kong stocks or property are due for a sharp drop although a small correction was likely.
"Clients are getting a bit nervous but they aren't ready to act on it yet. There's still a feeling that they should squeeze the maximum possible out of this rally," he said during a visit to Hong Kong to meet clients.
INSURERS PULL SHANGHAI LOWER
Insurers dragged down Shanghai markets, with China's key stock index slipping 0.2 percent on lighter volume.
Disappointing earnings from Ping An weighed on the sector, with its shares falling 0.8 percent while rival China Life dropped 1.2 percent.
Insurers' earnings have been hit by uncertain conditions in the domestic market, but a rise in interest rates this month is expected to boost their returns in the coming quarters as yields on bond investments rise.
The Shanghai Composite Index closed at 2,992.6 points, extending its losses after Wednesday's 1.5 percent drop.
Analysts expect the index, which has jumped 13 percent this month, boosted by a rally in commodities and energy stocks amid a weakening dollar in global markets, to consolidate at current levels in the short-term.
"The previous boost from a weaker dollar has disappeared a little, so the market is waiting for the end of October," said Guo Yanling, analyst at Shanghai Securities.
Banks were mostly higher after two of China's biggest posted stronger-than-expected quarterly profits. ($1=6.680 Yuan)
(Editing by Miral Fahmy)