Shanghai shares edged lower on Tuesday, pulling back from a six-month high, while banks helped Hong Kong's benchmark post modest gains ahead of a Federal Reserve meeting. China's key stock index ended 0.3 percent lower with market players seen paring some long bets in financials which had run up in recent weeks but participation in the markets remained strong with turnover near a 10-year high.
The Hang Seng index rose 0.1 percent and faces an important resistance at around 23,800, a level that has proved to be a strong hurdle to cross since mid-October. The Shanghai Composite has gained 15 percent since the start of last month on strong volume as investors piled into financials on optimism over China's growth and into materials as a weaker dollar pushed up prices of commodities.
After strong gains and a break above the pyschological 3000-level, some analysts expect consolidation at current levels. "The key factor is the Federal Reserve meeting tonight," said Zhang Yanbing, analyst at Zheshang Securities in Shanghai.
Financials and energy shares succumbed to profit-taking after recent gains. Coal producer China Shenhua, which fell 3 percent and China Life, down 2.3 percent, were the main drags on the benchmark index. Turnover in Hong Kong slipped about 22 percent from the daily average seen over the past month with market players awaiting the reaction of overseas markets to further asset purchases by the Fed and the US mid-term elections.
The benchmark closed 14 points higher at 23,671.4, taking a breather after posting its biggest single-day percentage gain on Monday. A further upmove in the Hang Seng could see the index breach the 61.8 percent retracement level of its entire slide over the course of the financial crisis, opening the way for a strong rally into year-end, traders said. "The US market may break out of its sluggish mode this week, and if there is an upside breakout, Hong Kong will test 24,000 at the end of this week or early next week."
Only two large-cap stocks, Hong Kong Exchanges & Clearing, down 1.6 percent on the day, and Tencent, up 0.2 percent, are yet to report results. Both are due next week. Chinese banks extended their gains as optimism over growth prospects continued to underpin flows into the sector after a robust set of third-quarter results.
China Construction Bank, which aims to raise $9.2 billion through a rights issue this month and is a top pick in the sector amongst several brokerages, rose 2.2 percent, was biggest boost to the broader market. Larger rival Industrial and Commercial Bank of China rose 1.3 percent.