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Shanghai, HK lower as banks weigh; refiners advance

Published 10/26/2010, 01:15 AM
Updated 10/26/2010, 01:20 AM

* HSI edges lower as weak banks offset gains in energy

* Weak financials drag Shanghai index lower

* BYD slumps 7 percent after losing market share to rivals

* Chalco slips 3.9 percent in HK after Q3 loss (Updates to midday)

By Vikram S. Subhedar and Farah Master

HONG KONG/SHANGHAI, Oct 26 (Reuters) - Shanghai and Hong Kong shares fell on Tuesday morning as financials slipped ahead of earnings announcements later this week, while energy issues advanced on the back of a rise in fuel prices in China.

The Hang Seng Index was 0.07 percent lower at 23,610.95, at the midday trading break, with Aluminum Corp of China Ltd (Chalco), the top loser, down 3.9 percent, after disappointing results.

China's key stock index slipped 0.3 percent, with drops in heavily weighted banks offsetting gains in oil majors that received a boost from a fuel price increase.

The Shanghai Composite Index was at 3,041.1 points, near a six-month high and well above the psychological 3000-level, which it broke during Monday's 2.6 percent advance.

"The index needs to consolidate at these levels before we can see further upside," said Chen Shaodan, analyst at China Development Bank Securities in Beijing.

Banking plays pulled the broader market lower, with investors preferring to lock in recent gains ahead of earnings announcements that kick off on Wednesday.

Agricultural Bank of China Ltd was down 1.4 percent, while Industrial and Commercial Bank of China Ltd fell 1.3 percent.

Robust loan growth and attractive valuations have tempted investors to make bets on banks that have underperformed the broader market for most the year.

China Railway Construction Corp Ltd declined 5.2 percent after it said it expected to lose about 4.15 billion yuan ($623 million) on a new Saudi Arabian railway for Muslim pilgrims.

The Shanghai stock market has jumped 13.5 percent this month, despite an unexpected rise in interest rates last week, cutting losses for the year to 8 percent compared with 18.9 percent at the end of September.

Analysts see the index's 250-day moving average, currently at 2,892, as a firm medium support.

ENERGY SHARES LIMIT HK LOSSES

Hong Kong's benchmark Hang Seng Index was down 0.07 percent at the midday trading break with gains in refiners helping to offset declines in financials.

Oil majors rose after China lifted retail fuel prices by about 3 percent, the first increase in seven months.

China Petroleum & Chemical Corp (Sinopec) rose 1.9 percent and Petrochina Co Ltd firmed 0.9 percent, providing the biggest boost to the benchmark.

The 3 percent price rise, which reverses a cut by a similar margin in June, will lift the profit margins of dominant refiners Sinopec Corp and PetroChina, which have been producing at top rates since 2009 under a system that largely guarantees a margin.

Aluminum Corp of China Ltd (Chalco) slipped 3.9 percent, the top loser on the Hang Seng Index, after reporting a third-quarter loss on a supply glut and weak margins.

Although the company said it was optimistic about its outlook, some analysts were unimpressed, citing concern over the company's fundamentals.

JPMorgan Chase metals analyst Nathan Zibilich downgraded the stock to "underweight" from "neutral" and said in a note to clients the market's exuberance after Chalco's rare earth investment on Sept. 28 was a bit irrational.

"With a net debt-to-equity ratio of 104 percent at quarter-end and projected negative free cash flow of 1.8 billion yuan this year, we believe the risk of equity holders being diluted through capital raises is high," said Zibilich.

BYD Co Ltd, the Chinese carmaker backed by U.S. billionaire Warren Buffett, slumped 6.9 percent after posting a 99 percent drop in third-quarter earnings as it lost market share to rivals. (Editing by Chris Lewis) ($1=6.66 Yuan)

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