SHANGHAI, May 31 (Reuters) - China and Hong Kong stocks were largely steady on Friday, but were poised to post their worst monthly performance since October last year, as an escalation in trade tensions between Beijing and Washington stoked economic slowdown fears. ** China’s blue-chip CSI300 index rose 0.1% to 3,643.39 at the end of the morning session, while the Shanghai Composite Index was unchanged at 2,906.01. ** So far this month, CSI300 and SSEC indexes slumped 6.9% and 5.6%, respectively, on track to record their biggest monthly decline since October. ** In Hong Kong, the Hang Seng index dropped 0.2% to 27,066.11, having lost 8.9% in May so far. The Hong Kong China Enterprises Index gained 0.1% to 10,462.26. ** Trade tensions between Beijing and Washington rapidly worsened this month, after U.S. President Donald Trump accused China of reneging on earlier promises in trade talks, and slapped fresh tariffs on $200 billion of Chinese goods, triggering retaliation from China. ** China’s President Xi Jinping and U.S. President Donald Trump are likely to find it “difficult” to make major progress toward ending their countries’ trade war when they meet at a G20 summit in Japan in June, Dai Xianglong, a former Chinese central bank chief said on Friday. ** Meanwhile, an official survey released on Friday showed that China’s factory activity in May slumped into a deeper contraction than markets had expected, heaping pressure on Beijing to roll out more stimulus to support an economy hit hard by a bruising trade war with the United States. ** China’s rare earth-related firms were again in the spot light on Friday, with media reports raising speculations that the material might be used as a weapon in the trade front. ** China is willing to meet reasonable demand for rare earths from other countries, but it would be unacceptable that countries using Chinese rare earths to manufacture products would turn around and suppress China, its commerce ministry said. ** Rare earth-related shares, including Shenghe Resources Holding Co Ltd, Beijing Zhong Ke San Huan High-Tech Co Ltd and Jl Mag Rare-Earth Co Ltd soared, helping lift an index tracking the metal sector by 1.7%.
Reporting by Samuel Shen and John Ruwitch; Editing by Rashmi Aich