China blue-chips extend falls as rally unwinds, Hong Kong also down

* SSEC -0.5 pct, CSI300 -0.8 pct, HSI -1.1 pct

* China doubles June liquidity injections to avert
cash crunch

* Hong Kong blue-chips follow mainland lower

SHANGHAI, July 4 (Reuters) – China stocks fell on Tuesday
morning, led by the blue-chip index losing ground for the third
straight session following a strong rally on the back of its
inclusion in a key MSCI index.

The CSI300 index fell 0.8 percent, to 3,620.69
points at the end of the morning session, while the Shanghai
Composite Index lost 0.5 percent, to 3,180.03 points.

“The recent correction is technical as blue-chips had far
outperformed the broader market this year, but we see little
chances for a major downturn in industry-leading big-caps as
they are not overvalued,” said Xu Wei, an analyst with Hongxin

The robust trend in China’s “nifty 50”, the 50 most
representative blue-chips in Shanghai, is broadening to the
so-called “MSCI222”, and investors could explore opportunities
in blue-chips with solid fundamentals as rotation into those
stocks is very prominent, Xu added.

U.S. index provider MSCI last month decided to add 222
China-listed stocks to its Emerging Markets Index, tracked by
around $1.6 trillion.

The inclusion is widely expected to benefit the long-term
development of China’s stock market, in particular blue-chips.

Worries over tight liquidity conditions have eased after the
mid-year macro-prudential assessment (MPA), although sellers
have been pressuring Chinese markets over the past week or so on
lingering fears of a cash crunch and slowing economic growth.

China’s central bank injected a net 99.5 billion yuan
($14.64 billion) into the financial system via short-and
medium-term liquidity tools in June, up 95 percent from the
previous month, to ease tight cash conditions at the end of the

The central bank will hold off on further monetary policy
tightening and could even slightly loosen its grip in coming
months as a deleveraging drive threatens economic growth and job
creation ahead of a leadership reshuffle, policy insiders said.

Sectors fell across the board in the morning, led by
financials, and the defensive consumer
and healthcare stocks.

Hong Kong stocks lagged the broader Asian markets, which
rose on strength in Europe and the United States.

The Hang Seng index dropped 1.1 percent, to 25,497.94

The Hong Kong China Enterprises Index lost 0.8
percent, to 10,333.25.

Most sectors lost ground, with heavyweight financials and
other industry-leading companies mirroring a correction in
mainland blue-chips.
($1 = 6.7974 Chinese yuan renminbi)

(Reporting by Luoyan Liu and David Stanway)