August 16, 2016 / 4:46 AM / 2 years ago

China stocks fall as bank weakness offsets property strength; HK flat

* CSI300: -0.4 pct; SSEC: -0.5 pct; HSI: flat

* bank shares corrected but property stocks continue to surge

* official says China banking system has ample liquidity

SHANGHAI, Aug 16 (Reuters) - China stocks pulled back from seven-month highs on Tuesday as a correction in bank shares offset continued strength in the property sector.

Hong Kong shares were roughly flat after retreating from nine-month highs, while other Asian stock markets saw modest gains, buoyed by a strong Wall Street performance overnight.

China’s blue-chip CSI300 index fell 0.4 percent to 3,379.41 points by the lunch break, while the Shanghai Composite Index lost 0.5 percent to 3,108.95.

After weaker-than-expected July lending and money supply data on Friday, China’s central bank has sought to reassure markets that credit conditions remain supportive.

The People’s Bank of China injected more liquidity into the banking system on Monday, extending 289 billion yuan ($43.55 billion) of medium term lending facility loans.

However, expectations of more aggressive monetary easing soon by the central bank - such as cuts in interest rates or banks’ required reserve ratios (RRR) - were weakened after a senior central bank official said China’s banking system has ample liquidity, and that interest rates are already at a low level.

Wu Kan, head of equity trading at investment firm Shanshan Finance, said the dramatic bidding war around developer Vanke has rekindled interest in stocks recently, but economic fundamentals don’t support a bull market.

“You see a lot of excitement in markets now as people see the chance of making quick money in some sectors,” Wu said.

“But the state of the economy doesn’t justify sustained market rally. Sector rotation is more likely.”

The banking sector dropped 2.3 percent on profit-taking, following the previous session’s jump.

But real estate stocks remained strong, with an index tracking the sector rising 2 percent to a fresh seven-month high, bringing gains so far this month to 26 percent.

Bellwether Vanke jumped 7 percent to an all-time high.

In Hong Kong, the Hang Seng index was unchanged at 22,926.87 points, while the Hong Kong China Enterprises Index edged up 0.1 percent to 9,719.51.

The IT sector jumped over 2 percent, while energy shares were also strong on higher oil prices.

Reporting by Samuel Shen and Pete Sweeney; Editing by Kim Coghill

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