* SSEC -0.8%, CSI300 -1.1%, HSI -0.4%
* China says provoking trade disputes is ‘naked economic terrorism’
* China’s Xi says reform faces new problems, external uncertainty rising
SHANGHAI, May 30 (Reuters) - China stocks dropped on Thursday, as trade war fears heightened after Beijing stepped up the rhetoric against Washington.
** The CSI300 index fell 1.1% to 3,622.93 points at the end of the morning session, while the Shanghai Composite Index lost 0.8% to 2,890.58 points.
** The Hang Seng index dropped 0.4% to 27,121.13 points, while the Hong Kong China Enterprises Index gained 0.5% to 10,440.27 points.
** Provoking trade disputes is “naked economic terrorism”, a senior Chinese diplomat said on Thursday, ramping up the rhetoric against the United States amid a bitter trade war that is not showing any signs of ending soon.
** “This kind of deliberately provoking trade disputes is naked economic terrorism, economic homicide, economic bullying,” China’s Vice Foreign Minster Zhang Hanhui said.
** His comments came after Chinese newspapers reported that Beijing could use rare earths to strike back at Washington after U.S. President Donald Trump remarked he was “not yet ready” to make a deal with China over trade.
** The U.S. Defense Department is seeking new federal funds to bolster domestic production of rare earth minerals and reduce dependence on China, the Pentagon said on Wednesday, amid mounting concern in Washington about Beijing’s role as a supplier.
** The possibility of A-share market returning to the bottom-seeking process in 2018 could not be ruled out, given no short-term solution to the stalemate in the Sino-U.S. trade war and a lack of upside momentum for China’s macro economy, Zheshang Securities noted in report.
** The A-share market could come under further pressure in case of substantially increased volatility in overseas markets, the brokerage added.
** Activity in China’s vast factory sector is expected to have shrunk in May after expanding slightly for two months, keeping pressure on policymakers to roll out more stimulus to stabilise an economy hit by a bruising trade war with the United States.
** China on Wednesday adopted a series of guidance measures, from improving macro-economic policies and ensuring food security to lowering medical costs, as President Xi Jinping warned that reform faces new problems with external uncertainties rising.
** Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.09%, while Japan’s Nikkei index slipped 0.58%.
** The yuan was quoted at 6.9105 per U.S. dollar, 0.04% firmer than the previous close of 6.913.
** The largest percentage gainers in the main Shanghai Composite index were Gansu Dunhuang Seed Group Co Ltd , up 10.06%, followed by Shanxi Guoxin Energy Corp Ltd, gaining 10.06% and Nanjing Tanker Corp , up by 10.06%.
** The largest percentage losses in the Shanghai index were Fujian Start Group Co Ltd, down 10.03%, followed by Hunan Copote Science Technology Co Ltd, losing 10% and JIANGSU LOPAL TECH Co Ltd, down by 10%.
** So far this year, the Shanghai stock index is up 16.87%, while China’s H-share index is up 2.6%. Shanghai stocks have declined 5.32% so far this month.
** The top gainers among H-shares were Bank of Communications Co Ltd, up 2.15%, followed by People’s Insurance Company Group of China Ltd, gaining 1.99% and China Railway Group Ltd, up by 1.78%.
** The three biggest H-shares percentage decliners were CSPC Pharmaceutical Group Ltd, which has fallen 2.91%, Shenzhou International Group Holdings Ltd, which has lost 2.2% and Air China Ltd, down by 1.4%.
** As of 0416 GMT, China’s A-shares were trading at a premium of 25.83% over the Hong Kong-listed H-shares.
Reporting by Luoyan Liu and John Ruwitch, Editing by Sherry Jacob-Phillips