* China, Hong Kong shares end at multi-week lows
* Volume of trade in HK surges to highest in over a month
* Nine Dragons slumps on new share plan (Updates to close)
By Jun Ebias and Claire Zhang HONG KONG/SHANGHAI, Oct 29 (Reuters) - Shares in Hong Kong and China finished at multi-week lows on Thursday, with Chinese banks hit by worries about a possible interest rate rise in the mainland, while Nine Dragons Paper slumped on its plan to issue new shares.
China's key stock index dropped 2.34 percent, weighed down by banking stocks amid worries over a possible exit from the government's loose monetary policy after Norway's interest rate increase.
The benchmark Hang Seng Index slid 2.28 percent or 496.59 points to 21,264.99, its lowest in more than three weeks. Turnover rose to HK$80.81 billion ($10.4 billion), the highest since Sept. 17 and up from Wednesday's HK$68.97 billion.
"Funds appear to be locking in profit as the month's end approaches," said John Mar, co-head of sales trading, Daiwa Securities SMBC. "Given that we are near the top of recent trading ranges, market direction has been taking its lead from overnight moves in the U.S. markets."
Bank of Communications (BoCom) retreated 5.39 percent, after reporting a flat quarterly net profit.
"There wasn't much of a positive surprise in it's third-quarter results, so it's down a bit more than the other banks," said Paul Lee, an analyst at Tai Fook Securities. The bank would likely post low single-digit growth in net profit for the whole of 2009, he added.
Citi reiterated its sell recommendation on BoCom, noting that the lender had the lowest tier 1 capital ratio among its peers, which could be a constraint on future loan growth.
Index heavyweight HSBC Holdings lost 1.21 percent and Bank of China was 2.7 percent lower.
The China Enterprise Index of top locally listed mainland Chinese stocks dropped 2.84 percent to 12,466.67.
PetroChina fell 4.02 percent. The oil producer posted a 23.5 percent decline in quarterly net profit as a steep slide in crude oil prices hurt earnings.
Other oil companies were also down: CNOOC fell 4.49 percent, while Sinopec lost 1.34 percent.
Nine Dragons Paper tumbled 11.49 percent. The packaging and paperboard maker said it would sell HK$2.87 billion ($370 million) worth of new shares to its controlling shareholder.
Bucking the trend, Geely Automobile closed up 2.09 percent. It earlier rose by 4.5 percent to a record high. Ford Motor Co named Geely's major shareholder as preferred bidder for its loss-making Swedish unit Volvo.
Zijin Mining fell 4.05 percent, even after reporting a 15.1 percent jump in quarterly profit.
Lianhua Supermarket Holdings lost 3.44 percent, after reporting a 329.9 million yuan net profit in January-September, without giving comparative figures.
SHANGHAI FALLS
The Shanghai Composite Index ended at 2,960.466 points, the lowest level since Oct. 13, hit by weak global markets and worries over a potential diversion of funds to China's ChiNext start-up market, due for launch on Friday.
ChiNext, a Nasdaq-style second board for start-ups, will begin trading in Shenzhen with an initial batch of 28 listed companies. Analysts said a strong debut could pull money and attention away from the main board.
The benchmark index has lost 4.7 percent this week from its 10-week closing high of 3,107.847 points climbed last Friday, as signs that some governments are considering an exit from stimulus schemes hurt sentiment.
Losing Shanghai A shares outnumbered gainers by 759 to 134, while turnover edged up to 117 billion yuan ($17.13 billion) from Wednesday's 114 billion yuan.
Banks, whose earnings performance is sensitive to monetary policy changes, fell. Top lender Industrial and Commercial Bank of China declined 2.17 percent to 4.95 yuan and was one of the most actively traded stocks.
"There is mounting pressure from worries over monetary tightening, with weak overseas markets and ChiNext's trading debut also playing a role," said Zheng Weigang, head of investment at Shanghai Securities.
The index may have more room to fall but could find short-term support at the key 125-day moving average, now at 2,930 points, Zheng said.
After a string of upbeat economic data released in mid-October, including GDP growth of 8.9 percent in the third quarter, Chinese officials are now saying economic expansion is likely to hasten this quarter.
China State Construction Engineering Corp, the country's biggest home builder, fell 7.17 percent to 4.79 yuan. It was the most actively traded stock, as 6 billion shares emerged from a lock-up and became tradeable on Thursday.
Investors cashed in profits on the shares, which surged when they were listed in Shanghai three months ago, analysts said.
Health-related shares rose after Beijing reported its first death from H1N1 flu. Shenzhen Neptunus Bioengineering advanced by its 10 percent daily limit to 16.90 yuan. (Editing by Chris Lewis)