* Hang Seng Index falls 0.7 percent, posts 2nd weekly loss
* Shanghai Comp edges up, gains 1.4 pct on week
* CNOOC slides 7 pct after conservative production forecast
* Tencent up 1.8 pct but short-sellers getting active
(Updates to midday)
By Vikram S.Subhedar and Chen Yixin
HONG KONG/SHANGHAI, Jan 28 (Reuters) - Hong Kong shares fell on Friday, extending their recent losses after a strong start to the year, as news of property taxes in China hit developers and as oil and gas producer CNOOC pulled down energy counters.
The benchmark Hang Seng Index fell 0.7 percent to 23,617 points, taking its losses to 1.1 percent on the week, as short-selling activity steadily picked up in a sign that investors were betting on near-term weakness to persist.
"Overhang is the new buzzword. There's an overhang in everything with inflation, property taxes and local government debt and there's just not a lot of conviction in the market right now," said Christian Keilland, head of trading at BTIG in Hong Kong, adding that speculative money was getting out.
The Hang Seng is still up 2.7 percent so far this year, but an encouraging early start fizzled as mainland markets remained weak and as emerging market funds in general saw outflows in favour of developed markets where stocks were seen as more undervalued.
The Shanghai Composite edged up 0.1 percent for a gain of 1.4 percent on the week, but is still down 2 percent so far this year, making it North Asia's worst performer.
Mounting inflation concerns and fears China's central bank may hike interest rates before the long Lunar New Year holiday next week have spurred outflows of as much as US$3 billion from emerging markets, according to analysts at Citigroup.
That would make the outflow the biggest outflow from emerging market funds since mid-2008 in U.S. dollar terms, analysts at Citigroup said in a research note.
Offshore oil and gas producer CNOOC in particular weighed heavily on the Hang Seng on Friday as investors took the firm's conservative production forecast as an excuse to dump the counter. The stock tumbled 7 percent, its biggest single-day drop since December 2008.
SHANGHAI EDGES UP, VOLUME LIGHT
China's main stock index ended marginally weaker at around 2,753 points as gains in small-caps offset weakness in property and financial issues, which came under selling pressure after China launched its first-ever property tax.
"Although the index has bounced up these several sessions, thin volume shows little potential for a further rise," said Wen Lijun, an analyst at Nanjing Securities.
The property sub-index dropped 0.1 percent, but trading was volatile with the index moving in and out of negative territory.
Shanghai and Chongqing led China in introducing taxes for home buyers on Thursday, as the government's revved up its battle to curb record home prices and tame inflation.
Gemdale , the most active stock on the Shanghai market, dropped 0.3 percent. Shenzhen-listed China Vanke , the country's biggest developer, fell 0.5 percent.
Speculation that China could introduce a property tax has helped drag down Chinese stocks 15 percent over the past 10 weeks, though most market watchers doubt the tax will do much to cool rising home prices on its own.
China International Capital Corporation (CICC) said in a report that China was likely to observe the influence of property market following the launch of the property tax in the two selective cities.
Still almost all 37 financial issues fell on concerns over the property sector's outlook, with Hua Xia Bank falling 1.8 percent and Industrial Bank down 1.8 percent.
But shares in consumer-oriented stocks and so-called "sunrise" industries such as automakers and science and technology firms outperformed.
SAIC Motor rose 3.7 percent, while Guangdong Orient Zirconic Ind Sci & Tech was up 2.6 percent.
The small-cap share sub-index was up 1 percent. (Editing by Kim Coghill)
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