Hong Kong stocks fell from a two-week high as weak Chinese economic data offset optimism on prospects of Fed easing. Tencent's retreat ahead of earnings weighed on the benchmark index.

The Hang Seng Index lost 0.4 per cent to 17,111.43 at the noon trading break after advancing for five straight trading days. The Tech Index dropped 0.8 per cent, and the Shanghai Composite Index weakened by 0.4 per cent to a six-month low.

Tencent dropped 1.7 per cent to HK$372.20 ahead of its earnings card later today. Gaming firm NetEase lost 3.7 per cent to HK$133.90, and food delivery platform Meituan fell 1.1 per cent to HK$102.20. Wuxi Biologics declined 3.9 per cent to HK$11.26, while sister company Wuxi AppTec retreated 3.6 per cent to HK$33.40.

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Sentiment soured after China's total social financing and new loans data disappointed again due to weak credit demand. In particular, loans to the real economy shrank by 77 billion yuan (US$10.8 billion) last month, the largest drop on record and the first decline since July 2005.

"This exacerbates concerns of deflation and a liquidity trap, boding ill for consumption and investment," analysts at Barclays including Yingke Zhou said in a note. The deleveraging cycle triggered by the collapsed housing bubble may be "only half done", they added.

Meanwhile, fresh reports due on Thursday are likely to show more signs of tepid growth momentum in the world's second-largest economy. Retail sales are expected to have grown by 2.6 per cent in July, a marginal improvement from the previous month, while industrial production growth is forecast to slow, according to consensus among economists tracked by Bloomberg.

Today's loss puts an end to a five-day rally for the city's benchmark index amid the broader region's recovery from the heavy sell-off last week. Confidence in local shares also appeared to be weakening, as trading volume steadily declined to a six-month low.

Lifting the mood, the latest US data showed that producer prices rose less than expected last month, and a gauge of consumer prices, due later today, is expected to remain steady at 3 per cent. That reinforced traders' bets that the US Federal Reserve will start its easing path when it meets next month.

Elsewhere, Zhejiang Weihua New Material, a chemical producer, jumped 42 per cent to 24.53 yuan on its first day of trading in Shanghai.

Other key Asian markets mostly gained, tracking overnight gains in the US. Australia's S&P/ASX 200 Index climbed 0.5 per cent and South Korea's Kospi Index added 0.6 per cent. Japan's Nikkei 225 weakened 0.1 per cent.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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