Shares in Hong Kong and Shanghai retreated at midday on Friday, cutting short a technical rebound in the previous session, as investors unloaded banks and developers on fears of another rate rise in China. China wants to bring down inflation, which accelerated to a 25-month high in October led by a rise in food prices. Beijing has announced this week it would control food prices and curb speculation in agricultural commodities.
Market players also expected China to increase key interest rates as early as later in the day and to limit bank lending to various industries such as real estate. The benchmark Hang Seng Index dropped 1.5 percent to 23,284.41, reversing Thursday's 1.8 percent gain.
The index, which has fallen 3.9 percent so far this week, was on track for its worst weekly performance in more than six months. Banks and local developers were the main drag. Industrial and Commercial Bank of China lost 3.2 percent and smaller rival China Construction Bank dropped 2.9 percent.
Developers Sun Hung Kai Properties dipped 1.9 percent and Sino Land fell 3.9 percent on newspaper reports the Hong Kong government may unveil fresh measures to cool the property sector. The HSI property index declined 2.2 percent. Bucking the trend, Chinese PC maker Lenovo Group Ltd gained 3.0 percent, lifted by an upbeat earnings forecast from rival Dell Inc.
China's key stock index dropped 1.1 percent, led by banks such as Everbright Bank as speculative retail investors, wary of a potential interest rate rise, cut their holdings in heavyweight financials. The Shanghai Composite Index was at 2,834.0 after gaining 0.9 percent in a technical rally on Thursday. The index is on track to lose 5 percent this week, due to an 11 percent slide from last Friday to mid this week.
Banks, among the most active shares, led the index lower with Everbright Bank down 3.8 percent, Agricultural Bank of China was 0.4 percent lower, while Merchants Bank dropped 2.9 percent. Volume rose but remained off from highs seen in October's liquidity fuelled rally. Turnover of Shanghai A shares edged up to 78 billion yuan from 69 billion on Thursday morning.
Shanghai shares have had a rollercoaster year so far, dropping nearly 30 percent by early July after a clampdown in bank lending and official measures to curtail the country's real estate fever. SAIC Motor Corp slipped 1.7 percent by midday after opening up more than 3 percent. The Chinese automaker announced on Thursday that it had bought a near 1 percent stake in General Motors Co, as part of the US automaker's IPO.