Hong Kong shares retreated on Monday morning, led by property issues after government measures to cool the property market, while China stocks edged higher as insurers and technology plays gained ground.
The benchmark Hang Seng Index was down 0.36% at 23,521.09 by the midday trading break. The China Enterprises Index of top locally listed mainland companies had eased 0.17%.
Local developers slumped after the government announced fresh measures including a new stamp duty on residential transactions to cool fast-rising property prices.
But a weak U.S. dollar and higher commodity prices buoyed resources counters, limiting losses in the broad market.
"We have two opposing forces in the market," said Ben Kwong, chief operating officer at KGI Asia. "On one hand, you have monetary tightening in China and anti-speculative measures in Hong Kong that's pulling down banks and properties. But it seems the weakness in the dollar is limiting the downside because it is favourable for commodities."
Property agency Midland Holdings Co slumped 15.5% on expectations revenue will fall after the cooling measures.
Developers were also lower, with the market's property sub-index down 2.63% at a two-month low, and Sino Land Co down 5.5%.
Turnover in shares of property developers remained stable, indicating that investors remained upbeat on their earnings potential despite government efforts to cool the sector.
"The (index) fall was not as deep as we expected," said Conita Hung, head of equity research of Delta Asia Financial, adding that investors were switching to consumer-related stocks, which were less affected by the latest measures.
Exporter Li & Fung rose 1.6% and Esprit Holdings rose 1.4% on optimism the bailout for Ireland will sustain global economic recovery. Footwear retailer Belle International Holdings rose 2.5%.
Bank of China slid 2.3% after Beijing raised bank reserve requirements again on Friday in an effort to ease inflation.
China Petroleum and Chemical Corp (Sinopec) rose 2.1% and China Shenhua Energy Co was up 0.9%.
INSURERS, TECH ISSUES
China's key stock index had edged up 0.5% by midday on Monday, with gains in insurers and information technology plays offsetting weakness in banking counters.
Late on Friday, the central bank raised bank reserve requirement ratios for the second time in two weeks, aiming to reduce the amount of cash in the financial system as part of its fight against inflation.
Analysts said there was not enough positive news for the index to rise much above the 250-day moving average, now at 2,887.6 points, but a mild technical bounce could take place as investors had been pricing in more severe tightening measures.
The Shanghai Composite Index was at 2,902.3 points at midday after falling 3.2% last week.
"The market is under pressure, with inflation rising much faster than anticipated," said Wang Aochao, analyst at UOB Kay Hian in Shanghai.
Wang, previously very bullish on the Shanghai market, said he had changed his outlook, with rising inflation, and additional pressure from slowing global demand and an appreciating yuan giving investors reason to be nervous.
Banks curbed overall gains, with Bank of China, the biggest drag on the index, down 1.2%. China Merchants Bank Co fell 1.3%, while Shanghai Pudong Development Bank Co slipped 1.2%.
Ping An Insurance (Group) Co of China Ltd jumped 2.9%, while China Pacific Insurance (Group) Co rose 1% as insurers shifted funds from bank shares to insurers, seen likely to fare better in an environment where interest rates are rising.
Analysts said capital flows into the market were set to continue, so investors would selectively position themselves in sectors such as new energy and information technology, seen likely to benefit from the government's new five-year economic development plan.
Guangdong Shengyi Sci Tech Co and computer hardware company Founder Technology Group Corp were among small-cap tech issues that jumped by their 10% limit, as retail investors rushed into what they view as the latest sector likely to gain from government support.
Volume rose but remained below highs seen in October's liquidity-fuelled rally. Turnover of Shanghai A shares edged up to 87 bln yuan on Monday from 78 bln on Friday morning.
Shanghai shares have had a rollercoaster year so far, dropping nearly 30% by early July after a clampdown in bank lending and official measures to curtail the country's real estate fever.
