* SSEC -1.1 pct, CSI300 -1.2 pct, HSI -0.1 pct
* Vanke downgrade, regulatory fears weigh on property stocks
* Banks rattled by bad debt worries, clampdown on riskier lending
* Investors brace for bad loan and earnings reports from banks
* HK->Shanghai Connect daily quota used 2 pct, Shanghai->HK daily quota used 6.8 pct
BEIJING, Aug 25 (Reuters) - China stocks looked set for their worst day in a month on Thursday as investors dumped property shares and banks came under pressure ahead of earnings reports and a crackdown on riskier lending practices in the financial sector.
The CSI300 index, which tracks the largest listed companies trading in Shanghai and Shenzhen, fell 1.2 percent to 3,290.53 points by early afternoon.
The Shanghai Composite Index lost 1.1 percent to 3,051.28. Both indexes were poised for their biggest one-day percent drop since July 27.
The property sector was among the top losers, slumping 3 percent to its lowest since Aug.12.
The subindex looked set for its fifth straight day of losses after rating agency S&P cuts the outlook on leading developer China Vanke to “negative” on financial concerns. Vanke plunged 4 percent.
Fears that more local governments may impose measures to cool rising home prices also weighed on developers’ shares. But Joe Qiao, a Shanghai-based analyst at Xiangcai Securities, said the sell-off did not reflect the fundamentals.
“The whole sector had surged more than 20 percent at one point this month, and falls in share prices this morning were purely a result of investors’ trading strategy as they want to lock in profits,” Qiao said.
Financials were also under pressure, with the subindex down 0.6 percent on jitters ahead of big bank’s earnings reports on Thursday and Friday which are expected to show a further increase in bad loans, which may lead to fresh capital raising and possibly even a government bailout.
China took aggressive steps on Wednesday to head off signs of growing risks in its financial and banking system, unveiling detailed rules to curb an unruly peer-to-peer (P2P) online lending sector and stepping into money markets in an apparent bid to curb an over-reliance on short-term borrowing.
Some traders believe more smaller banks are using shorter-term funding to speculate in the bond market as they hunt for higher yields.
Shares of major China banks listed in Hong Kong, however, edged higher on views that the crackdown on online P2P lending firms would result in more business for commercial banks.
“Those small online lenders have eaten up a lot of market shares from big banks, and now some borrowers will go back to big banks,” said Sam Chi Yung, senior strategist at South China Financial Holdings in Hong Kong.
“But mainland giant banks are no longer in their fast expanding period.”
The Hang Seng index dropped 0.1 percent to 22,808.09 points. The Hong Kong China Enterprises Index gained 0.1 percent to 9,515.36.
Reporting By Winni Zhou and Nicholas Heath; Editing by Kim Coghill