* Hang Seng index slips 0.31 pct, ending three-day advance
* Oil plays support Hong Kong market, but banks lose ground
* Shanghai slips 0.11 pct on policy, share supply worries
* Chinese pharmaceuticals strong on possible merger deal (Updates to close)
By Nerilyn Tenorio and Claire Zhang
HONG KONG/SHANGHAI, Oct 16 (Reuters) - Hong Kong stocks closed down 0.31 percent on Friday, ending a three-day advance as profit-takers dug deeper into previous gains made on higher crude prices and a weaker U.S. dollar.
In Shanghai, the key stock index fell 0.11 percent, faltering at a key chart resistance level as share supplies and central bank comments highlighting a time limit for China's easy monetary policy weighed on sentiment. "After the rally of the past few days, the market has come to a consolidation phase, especially ahead of the weekend," said Kenny Tang, research head at Redford Securites.
The benchmark Hang Seng Index dropped 69.18 points to 21,929.90, off the previous day's 14-month closing high. Compared with a week earlier, the index was up 2 percent.
Turnover thinned to HK$68.6 billion ($8.9 billion) from Thursday's nearly HK$80 billion.
The China Enterprises Index of top Hong Kong-listed mainland companies eased 0.84 percent to 12,751.46.
"People are unwilling to buy at this point," said Steve Cheng, Shenyin Wanguo Securities associate director in Hong Kong. "The market may be consolidating in the 21,800-22,200 range in the short term," he added.
Despite the lower turnover, the level of liquidity inflows from investments exiting the U.S. dollar remained high, keeping the Hong Kong dollar at the top of its trading band, and leading the Hong Kong Monetary Authority to intervene actively this week.
Dealers said they expected further interventions by the HKMA as global markets remained awash with liquidity, while interest rates remained low.
Capital has been flowing into Asia on optimism about the region's economic recovery, as well as expectations that the Chinese yuan will continue to appreciate.
Gains made earlier by oil shares from the rise in U.S. crude futures for a seventy day to a one-year high of $78 per barrel on Friday were wiped out by profit-takers.
PetroChina slipped 0.2 percent, while CNOOC dipped 0.83 percent.
China Resources held on to its gains, advancing 3.61 percent to HK$25.85, on a potential stake sale to fashion retailer Esprit Holdings. Esprit's chairman said his company was considering buying from China Resources the remaining stake in their China joint venture.
Fashion retailer Li & Fung came under pressure, sliding 3.19 percent after September retail sales in the U.S. fell 1.5 percent.
Hong Kong-based holding company Kaisun Energy ended down 11.51 percent after jumping to a high of HK$1.62. It said on Thursday that it would buy out a Russian oilfield company, Nobel Holdings Investments, invested in by China Investment Corp.
AWAY FROM EASY MONETARY POLICY?
The Shanghai Composite Index ended down 3.155 points at 2,976.633 after rising as far as 3,008.179, breaching but failing to hold above the psychologically important 3,000-point level for a third straight session.
The index gained 2.2 percent on the week.
China's central bank gave the first public indication that it was considering when it could move away from its year-old ultra-loose monetary policy, in comments by People's Bank of China chief Zhou Xiaochuan published in state media on Friday morning.
"Zhou's comments were taken as a negative signal by investors," said Wu Nan, an analyst at Xiangcai Securities in Shanghai.
Losing Shanghai A shares edged out gainers by 461 to 410, while turnover slipped to 105 billion yuan ($15.38 billion) from Thursday's 110 billion yuan.
Analysts said investors were cautious given the prospects for increased share supply and ahead of third-quarter economic data due for release in the latter half of next week, as they sought further signs of improvement in the economy and clues to the outlook for possible monetary policy tightening.
"The index may test its 60-day moving average (now at 3,039 points) next week with stability in earnings and the overseas markets, although officials may continue approving new share issues and this could prevent the index from breaking out of its range," said Li Wenhui, senior analyst at Huatai Securities.
Drug makers were strong following news of a merger deal in the sector.
Shanghai Pharmaceutical, Shanghai Zhongxi Pharmaceutical and Shanghai Industrial Pharmaceutical Investment each jumped by the 10 percent daily limit after announcing a merger plan, which analysts said could boost earnings. They had been suspended from trade since June 17. The benchmark index has risen 6 percent since then.
Kunming Pharmaceutical jumped by its 10 percent limit to 10.44 yuan after saying net profit in the third quarter climbed more than 400 percent year on year and that several high-profile mutual funds had become major shareholders.
Top Asia refiner Sinopec fell 1.34 percent to 11.82 yuan as a massive 57 billion of its shares became tradeable on Friday after the expiry of a lock-up period.
Analysts said the shares, however, were largely in the hands of a major shareholder that was unlikely to cut its stake, so the long-term impact on Sinopec's share price should be limited.
China International Travel sank 9.78 percent to 15.41 yuan after a strong market debut on Thursday, when it rose 45 percent from its IPO price (Editing by Chris Lewis)