* HSBC drops on cautious growth comments from chief executive
* Anhui Conch gains on speculation about rival's IPO (Updates to close)
By Jun Ebias
HONG KONG, Oct 5 (Reuters) - Hong Kong stocks erased earlier losses to close up 0.26 percent on Monday, as investors hunted for bargains after shares fell to three-week lows, but concerns about the state of the U.S. economy capped gains.
A narrowing in losses of index heavyweight HSBC also helped the key index to rebound from earlier losses.
HSBC closed down 0.98 percent, after falling by as much as 1.6 percent earlier in the day. Chief Executive Michael Geoghegan expressed caution about "growing too fast" because he feared a second economic downturn could force the bank to make write-downs.
"The market has been down in the previous sessions, so there was some bargain hunting," said Howard Gorges, a director at South China Brokerage. "A slight recovery in HSBC helped a bit."
The benchmark Hang Seng Index, which swung back to a gain, finished up 53.58 points at 20,429.07. The index was down 0.2 percent at midday.
Hong Kong shares have fallen in six out of the last seven sessions to a three-week low on Friday.
Volume fell to HK$43.7 billion ($5.6 billion), the lowest since Sept. 15 and down from Friday's HK$56.9 billion. A public holiday in China damped demand for Hong Kong stocks. China's equities markets will resume trading on Oct. 9.
Consumer goods exporter Li & Fung lost 4.7 percent on concern that a rising jobless rate would further cut consumer spending in the U.S., one of Asia's top markets overseas.
U.S. employers unexpectedly shed more jobs in September than in August, highlighting the fragility of the economy's recovery from its worst recession in 70 years.
"U.S. consumer spending has been the engine of growth for the global economy. Now that engine has stalled as the unemployment situation worsens," said Francis Lun, general manager at Fulbright Securities.
The China Enterprises Index of top locally listed mainland Chinese stocks was up 1.03 percent at 11,645.05, led by a 4.11 percent gain in Anhui Conch.
Chinese cement maker Anhui Conch rose on speculation that rival China Resources Cement would do well on its trading debut in Hong Kong on Tuesday. That prompted investors to buy shares of firms from the same industry, traders said.
China Resources Cement saw the retail portion of its HK$6.39 billion IPO oversubscribed by 81.6 percent, the Sing Tao Daily reported on Monday.
Toys-to-property company RBI Holdings extended gains, up 8.2 percent. The stock more than tripled on Friday after it said it would acquire Apollo Precision, a maker of silicon-based thin film photovoltaic modules, for HK$4.18 billion ($539.4 million), to cash in on growing demand for solar energy in China.
R&F Properties gained 1.04 percent. The Chinese developer received formal approval from China's Securities regulator to issue up to 5.5 billion yuan ($805 million) worth of local currency bonds, the Hong Kong Economic Times said. (Editing by Chris Lewis)