* Two main indexes flat midday after opening more than 1 pct lower
* Small-caps rally, underpinned by solid earnings
* China arrests executives for irregular futures trading
SHANGHAI, Nov 2 (Reuters) - China stocks were flat on Monday, with a rally in small-cap shares helping to offset concerns about China's weak economy and the government's crackdown on illegal futures trading.
The two main indexes, CSI300 index and the Shanghai Composite Index, were little changed, at 3,534.97 and 3,381.82 points, respectively, after falling by more than 1 percent at market open.
The start-up board ChiNext rose 1.2 percent. The index has now rebounded about 40 percent from its mid-September low.
"The trading in ChiNext was active after small companies reported relatively good third-quarter performance, albeit valuations are high...the ChiNext might have capped the losses," said Du Changchun, an analyst at Northeast Securities in Shanghai.
China and Hong Kong stock markets were pressured by fears that the Chinese economy may still be losing momentum in the fourth quarter despite a raft of stimulus measures.
China's manufacturing sector unexpectedly contracted in October for a third straight month, an official survey showed on Sunday, while a private factory survey on Monday also showed activity fell for an eight consecutive month in October.
Sentiment was also subdued by a report from the Xinhua news agency that China had arrested two executives from a Hong Kong-owned fund for irregular futures trades involving hundreds of millions of dollars, the first public arrests linked to a non-mainland fund caught up in a crackdown on risky trading.
Since Chinese stocks plunged in mid-June, the country has intensified probes into market manipulation which have so far netted journalists, senior executives in brokerages and even securities regulators.
Investor confidence, however, has been buoyed by greater liquidity in the stock market from another cut in benchmark interest rates on Oct. 23. Chinese fund managers have raised suggested equity exposure for the coming three months, rebounding from a record low last month, a Reuters poll showed.
The Hang Seng index dropped 0.6 percent, to 22,504.08 points, and the Hong Kong China Enterprises Index lost 0.5 percent, to 10,343.95. GRAPHICS
China stock market graphics suite reut.rs/1NfkoGl
includes timeline of crash, PE ratios, market caps Reporting by Ruby Lian, Pete Sweeney and Shanghai Newsroom; Editing by Jacqueline Wong