July 7, 2016 / 5:21 AM / 2 years ago

China stocks caught in tug-of-war between weak yuan and stimulus hopes, HK up

* CSI300 -0.6 pct; SSEC -0.5 pct; HSI +0.8 pct

* China’s yuan edged up vs dollar, pulling away from low

* More stimulus expected to support struggling economy

HONG KONG, July 7 (Reuters) - Stocks in China slid on Thursday as investors feared further weakness in the yuan and instability in Europe, one of the country’s biggest export markets.

News of a rise in non-performing loans at the country’s banks also rattled investors, weighing on bank stocks, but continued expectations of more stimulus measures for the struggling economy helped to keep losses in check.

The mainland’s blue-chip CSI300 index fell 0.6 percent to 3,197.53 points by the lunch break, and the Shanghai Composite Index slid 0.5 percent to 3,002.51.

Both indices appeared on track for their biggest one-day percentage decline since June 24, after Britain voted to secede from the European Union.

The yuan has fallen about 1.6 percent since Brexit to 5-1/2 year lows. Though the currency steadied on Thursday, most analysts and traders believe the central bank will allow it to drift further to support struggling exporters.

Sector performance was mixed with consumer stocks , resources, and healthcare posting gains, while banks slid on worries about growing bad loans.

Outstanding non-performing loans (NPLs) in China’s vast banking sector exceeded the two trillion yuan ($299.21 billion) mark at the end of May, a senior banking regulator official said on Thursday.

Still, some investors were believed to be buying on the dips, after recent data and business surveys suggested the economy is losing momentum and is in need of more government support.

“The A shares still have room to go up after consolidation thanks to expectation of loosening monetary policy, reforms and the (expected) launch of Shenzhen-Hong Kong stock connect,” said Xiao Shijun, an analyst at Guodu Securities in Beijing.

“We expect the market to rise another 10-15 percent in the coming 1-2 months,” Xiao added.

In Hong Kong, the blue-chip Hang Seng Index rose 0.8 percent to 20,653.06, and the China enterprises index climbed 0.8 percent.

Shares of energy stocks led the rise with China Shenhua surging 4 percent, PetroChina and Sinopec Corp up more than 2 percent. (Reporting by Michelle Chen and Donny Kwok; Editing by Kim Coghill)

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