* CSI +0.1 pct; SSEC +0.1 pct; HSI +1.2 pct
* Shanghai trading volumes hovering around 3-month lows
* Buy-side still eyeing potential MSCI A-share inclusion
By Samuel Shen and Nathaniel Taplin
SHANGHAI, May 20 (Reuters) - China stocks edged up on Friday morning, but the main indexes are poised for a fifth week of losses on fading optimism over the country's growth prospects and concerns about rising U.S. interest rates.
China's blue-chip CSI300 index was up 0.1 percent at 3,065.45 by the lunch break, with the Shanghai Composite Index also up 0.1 percent at 2,809.72. Both indexes are set for a weekly loss of around 0.5 percent.
Hong Kong shares followed most Asian stocks higher, but light trading indicated caution.
Investor optimism fuelled by strong Chinese March economic data has faded rapidly on signs that the recovery lost momentum in April, and on fears that policymakers may be taking a more cautious stance on further stimulus as bad debts soar.
Beijing is pushing for painful structural reforms by stepping up restructuring and factory closures in China's bloated state sector.
The finance ministry said on Thursday that the Chinese central government will earmark 27.64 billion yuan ($4.23 billion) to help local governments pay for capacity closures in the steel and coal sectors this year.
In a sign of reduced risk appetite, trading volume in Shanghai has been hovering around three-month lows, while outstanding margin financing - money investors borrow to buy stocks - has been shrinking steadily over the past few weeks.
Most sectors in China fell, with strength in banking heavyweights helping to prop up the main index.
Analysts say some investors are quietly buying relatively cheap blue-chip shares, betting benchmark compiler MSCI will include Chinese shares in its Emerging Markets Index next month.
"The A-share inclusion is something that institutional investors absolutely need to prepare for now," Shanghai-based hedge fund house MegaTrust Investments wrote.
In Hong Kong, all main sectors rose, with IT and energy shares leading the rise.
Editing by Jacqueline Wong