* CSI300 -2.8 pct; SSEC -2.5 pct; HSI -0.3 pct
* Net assets of China stock funds down 44 pct in Aug
* Shares fall despite regulator's market-soothing remarks
SHANGHAI, Sept 15 (Reuters) - China shares extended this week's losses to more than 5 percent on Tuesday as investors worried about the slowing economy.
Stocks fell across the board for a second day even after China's securities regulator tried to soothe investors late on Monday by saying that an ongoing crackdown on illegal margin financing would not have significant impact on the market.
Hong Kong stocks also dipped, with investors nervous ahead of the Federal Reserve's policy decision later this week, though many now expect the U.S. central bank will hold off on raising interest rates for another few months.
The CSI300 index fell 2.8 percent to 3,189.95 points at the end of the morning session, while the Shanghai Composite Index lost 2.5 percent to 3,036.15.
Trading was thin, with many investors on the sidelines amid concerns over the market's direction after a 40 percent crash over the summer prompted the government to launch a massive rescue package.
"With a slim chance of making a profit in this market, money is not following in," said Zhou Lin, analyst at Huatai Securities.
Indeed, data showed heavy investor redemptions last month, with total net assets of Chinese stock funds slumping 44 percent to 724.8 billion yuan. Stocks fell about 12 percent in August.
August industrial output and investment data on Sunday pointed to further weakness in the economy, and concerns about growing capital inflows added to the disquiet.
China's central bank and commercial banks sold a net 723.8 billion yuan ($113.69 billion) of foreign exchange last month, by far the largest on record, highlighting how capital outflows intensified in the wake of the yuan's devaluation last month.
Underscoring Beijing's efforts to re-energise flagging economic growth, China's fiscal spending jumped 25.9 percent in August from a year earlier, the biggest rise since April, official data showed on Tuesday.
Small-caps tumbled on Tuesday, with the CSI300 IT index slumping 4.5 percent, and Shenzhen's growth board ChiNext tanking 3.3 percent.
Banking shares, which rose late on Monday amid speculation of government intervention, also corrected, with a key index tracking the sector losing 1.7 percent.
Of all the stocks traded in Shanghai and Shenzhen, 2,151 declined, while only 234 gained.
In Hong Kong, the Hang Seng index dropped 0.3 percent, to 21,500.39 points, while the Hong Kong China Enterprises Index gained 0.1 percent, to 9,734.27.
Most sectors sagged, but energy and tech shares ended the morning firmer. (Samuel Shen and Pete Sweeney; Editing by Kim Coghill)