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* Shanghai falls 0.9 pct; Hong Kong down 0.8 pct
* Banks, developers drag both markets lower
* Outlook cloudy on China, Korea, Europe worries
* Turnover down as risk aversion intensifies
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By Jun Ebias and Farah Master
HONG KONG/SHANGHAI, Nov 26 (Reuters) - Shares in China and Hong Kong retreated on Friday, ending a volatile week on a bearish tone as investors remained wary that Beijing may take more aggressive measures to curb inflation.
Growing tensions on the Korean penninsula and worries that Europe's debt crisis could engulf Portugal and Spain added to investors' reluctance to hold riskier assets heading into the year end. [ID:nL3E6MQ058] [ID:nL3E6MQ058]
"There are no catalysts to drive the market higher, so investors are in a wait-and-see mode," said Paul Lee, analyst at Tai Fook Securities.
Many investors were expecting another increase in Chinese banks' required reserve ratios and a further interest rate rise by the end of the year.
The Shanghai Composite Index ended down 0.9 percent at 2,871.7 points and was little changed for the week.
The Hang Seng Index slipped 0.8 percent to 22,877.25, its lowest level in almost eight weeks. For the week, it fell 3.1 percent, its worst weekly performance in four months.
Recent steps by monetary authorities to tighten policy caused a temporary funding squeeze on Friday, further deterring investors from taking any new positions in the stock market. [ID:nTOE6AP036]
With rising funding costs, investors spurned sectors such as banks and steel, which have been the focus of much buying and selling activity recently.
Market turnover has slumped since the start of November, with retail investors, easily influenced by policy fears, exited large-cap issues and took profits from several months of strong gains.
In China, new stock account openings for trading in local-currency shares fell 23 percent on the week, compared with record highs hit in October, a further indication that investor confidence was rapidly waning.
"Many investors may be worrying about potential new measures and are positioning themselves selectively," said Zhang Gang, analyst at Central Securities.
Retail investors, who account for two-thirds of turnover, sold out of banks such as China Everbright Bank , which fell 2.3 percent, and Industrial and Commercial Bank (ICBC) , which slid 1.6 percent.
Steel issues were also weak after the Dalian Commodity Exchange said it would raise margin trading margins and daily trading limits for the second time in 10 days to deter speculators. The Shanghai Futures Exchange is taking similar measures. [ID:nTOE6AP026]
China's second biggest mill by output, Baosteel , dropped 0.9 percent, while Inner Mongolia Baotou Steel fell 3.0 percent.
Not all investors were bearish, however. Some buying was seen in small-cap shares that are expected to benefit from government support in the longer term, including new energy and agricultural issues.
Electric wire manufacturer for instance, Kinwa High Technology rose by its 10 percent limit.
BANKS, COMMODITIES ALSO WEIGH ON HONG KONG
"The market will continue to fall next week. The uncertainties in China will not go away soon," said Francis Lun, general manager at Fulbright Securities in Hong Kong.
The Hang Seng index has retreated more than 8 percent since a global market rally helped push it to 29-month highs at the start of the month. But it is still up about 5 percent for the year to date.
Turnover fell to HK$66 billion ($8.5 billion), the lowest in two months and below November's daily average of HK$101 billion.
Banks and oil counters were among the biggest losers. Industrial and Commercial Bank of China lost 1.8 percent on speculation of another hike in banks' reserve ratios.
PetroChina slipped 1.4 percent, pressured by stronger U.S. dollar. The flare-up in global risk aversion in recent weeks has buoyed the dollar, weighing on commodity prices and thus shares of resource companies. (Editing by Kim Coghill)
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