* CSI300 -0.9 pct; SSEC -1.3 pct; HSI -0.3 pct
* 25 companies will launch IPOs this week
* Hong Kong braces for democracy showdown ahead of crucial vote
By Samuel Shen and Pete Sweeney
SHANGHAI, June 16 (Reuters) - China’s equities markets fell on Tuesday morning, bogged down by a government crackdown on illegal margin financing and investor caution before the launch of a slew of IPOs this week.
Stocks were also weak in Hong Kong, with investor risk appetite curbed by political uncertainty ahead of a crucial vote this week and on prospects of an imminent Greek debt default.
This week will see the launch of 25 initial public offerings in China, which analysts say will lock up more than 7 trillion yuan ($1.13 trillion) of subscription capital.
Short-term market liquidity is being strained by a fresh crackdown on illegal margin financing activities announced by regulators over the weekend.
“Obviously, regulators want to reduce the high leverage in the stock market, and that is having an impact on the market, especially on small cap stocks,” said Gong Gang, a vice president at Huarong Securities.
“A correction at this level is very natural. If economic fundamentals cannot catch up with high stock valuations, there will be a problem.”
The Shanghai Composite Index at one point dropped more than 2 percent, but recovered some losses by midday to be down 1.3 percent at 4,995.28 points. The CSI300 index fell 0.9 percent, to 5,173.88 points.
Shenzhen’s growth board ChiNext ended the morning down 1.5 percent, having tumbled more than 5 percent in early trading.
Most sectors fell, with telecommunications and infrastructure leading the decline.
But most brokerage stocks rose. Many securities firms have gained from a surge in trading and also tapped the bullish market for capital-raising, potentially benefitting their businesses.
For example, Huatai Securities Co , which last month raised $4.5 billion in a Hong Kong IPO, said on Monday it would raise the ceiling of its margin financing and short-selling business by one-third.
Property stocks were also firm, after China’s housing ministry said it would continue working to stabilise the property market.
In Hong Kong, the Hang Seng index dropped 0.3 percent, to 26,771.33 points, while the Hong Kong China Enterprises Index lost 1.3 percent, to 13,440.71.
The former British colony is bracing for a fresh democracy showdown as a crucial vote on a China-backed electoral reform package will be held this week.
Dozens of police stood guard around Hong Kong government headquarters on Tuesday, a day after authorities arrested 10 people and seized suspected explosives.
Most sectors, including energy, property and construction and financials fell in Hong Kong.
$1 = 6.2068 Chinese yuan Editing by Jacqueline Wong