* CSI300: -1.6 pct; SSEC: -1.5 pct; HSI: -1.2 pct
* China sec regulator restricts OTC swap business
* China industrial profit falls for five months in a row
SHANGHAI, Nov 27 (Reuters) - China shares fell over 1 percent on Friday morning, heading for their biggest one-day drop in a month, hit by fresh regulatory crackdown on leverage activities and weak industrial profit data.
The wave of bad news, which also includes regulatory probes into several big brokerages, hit already fragile market sentiment as investors brace for a fresh batch of initial public offerings that will kick off next week.
The blue-chip CSI300 index fell 1.6 percent to 3,699.40 points at the end of the morning session, while the Shanghai Composite Index lost 1.5 percent, to 3,580.18 points.
The indexes are poised to fall the most in four weeks, and heading for their worst weekly performance in two months.
Mainland stocks fell across the board, with the industrial sector among the worst casualties, reflecting gloomy outlook.
The bearish sentiment spread to Hong Kong as well, knocking down the benchmark Hang Seng index by 1.2 percent to 22,211.81 points while the Hong Kong China Enterprises Index lost 2.0 percent, to 9,905.50. All main sectors in Hong Kong were in negative territory.
Mainland investors were taken aback by news that China’s securities regulator had urged brokerages to cease financing clients’ stocks purchases through over-the-counter swap contracts, the government’s latest step to reduce leverage.
The China Securities Regulatory Commission (CSRC) also started investigations into China’s biggest brokerage CITIC Securities and its smaller rival Guosen Securities , while sources told Reuters on Friday that another major brokerage, Haitong Securities, was also under probe.
Both CITIC and Guosen slumped over 6 percent, while Haitong was suspended from trading.
Further souring market sentiment was data released on Friday that profits earned by Chinese industrial companies fell 4.6 percent in October, declining for the fifth consecutive month.
“After rebounding over 20 percent from its bottom, you need fresh capital to maintain the upward momentum, but recent government measures to deleverage have sparked fears,” said Zhou Lin, analyst at Huatai Securities.
“In addition, I don’t see signs that the economy has bottomed out.”
Reporting by Samuel Shen and Pete Sweeney; Editing by Sam Holmes