January 17, 2017 / 5:12 AM / a year ago

China stocks rattled as small caps sink for 9th day; Hong Kong rebounds

* China to target around 6.5 percent growth in 2017 - sources

* Faster IPO approvals weigh on China market

SHANGHAI, Jan 17 (Reuters) - China stocks fell on Tuesday as small caps skidded for the ninth consecutive session, rattling investor confidence and reviving memories of the broader market crash in mid-2015.

Sentiment was also dampened by a Reuters report that China would lower its 2017 economic growth target to around 6.5 percent from last year’s 6.5-7 percent, indicating that Beijing would tolerate a more moderate pace of growth this year and making large-scale fiscal stimulus less likely.

The blue-chip CSI300 index fell 0.4 percent to 3,305.87 points by the lunch break, while the Shanghai Composite Index lost 0.5 percent to 3,087.91.

Traders were again focused on rising volatility in small-caps, with the tech-heavy ChiNext, the country’s start-up board, heading for its ninth consecutive session of losses.

ChiNext fell nearly 0.7 percent by midday, after tumbling as much as 6 percent and hitting a 16-month low in the previous session.

China’s small caps have been far underperforming blue-chips over the past six months, with a selloff accelerating in recent sessions.

Analysts attribute the weakness to investors’ cooling interest in “new economy” plays, intensified selling by major shareholders, regulators’ crackdown on leveraged trading and a speed-up in approval of IPOs.

“We expect the pressure to continue in the foreseeable future, which has the potential to trigger financial instability,” BofA Merrill Lynch wrote.

Most sectors lost ground in the mainland market.

The infrastructure sector retreated nearly 1 percent at midday. But energy added around 0.2 percent after receiving a boost from China Petroleum & Chemical Corp and PetroChina Co Ltd as the two pledged to propel restructuring reforms this year on Monday.

Hong Kong

Hong Kong shares rebounded in thin trading, as investors adopted a cautious attitude ahead of UK Prime Minister Theresa May’s speech on Brexit later in the day, and U.S. President Donald Trump’s inauguration on Friday.

The benchmark Hang Seng index rose 0.4 percent to 22,817.42, while the Hong Kong China Enterprises Index edged up 0.2 percent to 9,688.11.

Nearly all sectors made modest gains, led by energy and tech stocks, which both rose around 0.9 percent.

Linus Yip, a Hong Kong-based strategist at First Shanghai Securities, said investors are taking a wait-and-see stance over concerns that a post-election rally was overdone.

Yip noted that gains also were capped by a weak mainland market as well as limited southbound capital flows as mainland investors took to the sidelines ahead of the Lunar New Year at the end of January, one of the most important holidays in China.

Reporting by Jackie Cai and John Ruwitch; Editing by Kim Coghill

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