* HSI -1.0 pct, H-shares -0.8 pct, China shut for holiday
* Hang Seng most technically oversold since June 2013
* Chinese developers jump after home loan rules relaxed
* Macau casinos hurt by coming smoking ban (Updates to midday)
By Grace Li
HONG KONG, Oct 3 (Reuters) - Hong Kong shares sank to 4-1/2 month lows on Friday, with investors unloading stock amid the continued civil unrest in the city and more gloomy economic news on China.
Chief Executive Leung Chun-ying defied pro-democracy protesters' demands to step down by Friday, with pressure also increasing from Leung's backers in Beijing over one of the most serious political challenges they have faced in decades.
At midday, the Hang Seng Index fell 1.0 percent to 22,701.57 points, the lowest level since May 21. The China Enterprises Index of the top Chinese listings in Hong Kong was off 0.8 percent to a more than three-month low.
For the week with three trading sessions, they are now down 4.1 and 3.4 percent, respectively.
Having corrected more than 10 percent from its early September peak, the benchmark index was at its most technically oversold in 15 months, with its relative strength index standing at 21.3. On the technical momentum indicator, a reading below 30 suggests an index is oversold.
Recent weakness in the Chinese offshore market has left the Hang Seng China A-H Premium Index at its highest since February at 101.18, suggesting H-shares are now trading at a discount to A-shares.
Hong Kong markets were shut on Wednesday and Thursday for public holidays. Those in the mainland will stay closed until next Wednesday.
China's official Purchasing Managers' Index (PMI) released on Wednesday hovered at 51.1, indicating a modest expansion in activity and a touch ahead of forecasts for a 51.0 reading.
But the official non-manufacturing survey on Friday showed the country's services sector grew at its slowest pace in eight months in September after new orders shrank for the first time since the 2008 global financial crisis.
"The official PMI let investors take a breath for now because at least it did not go worse," said Larry Jiang, chief strategist at Guotai Junan International in Hong Kong.
"The downward pressure in China is still worrying, so people are waiting to see if anything comes out from the fourth plenary session of the key Party meeting around Oct. 20."
On the upside, Chinese property developers outperformed after China cut mortgage rates and downpayment levels for some home buyers for the first time since the 2008 global financial crisis, though the move itself highlighted the worries about a shaky economy.
China Resources Land surged 7.5 percent and China Overseas Land & Investment jumped 5.1 percent.
Macau casinos were again weaker ahead of September gambling revenue data. Several factors are working against the beaten-down sector, including a smoking ban and escalating labor issues.
Retails extended losses, led by jewellery retailer Luk Fook Holdings International which shed 3.8 percent. Prada SpA shares fell as much as 4.6 percent but trimmed losses to 0.6 percent by the lunch break.
Hong Kong's protests may have cost retailers HK$2.2 billion ($283.42 million) in sales, ANZ said in a research note on Friday. (1 US dollar = 7.7624 Hong Kong dollar) (Editing by Richard Borsuk)