* China shares finish at lowest in six weeks
* Shanghai index drops 6.6 pct on wk; biggest drop in 5 mnths
* HK shares claw back 0.2 pct led by Li & Fung (Updates to close)
By Parvathy Ullatil and Claire Zhang
HONG KONG/SHANGHAI, Aug 14 (Reuters) - Chinese stocks slid 3 percent to their lowest close in six weeks on Friday and posted their biggest weekly drop in five months, as worries about new supplies of shares joined a list of concerns that left this year's rally looking overdone.
Hong Kong shares clawed back 0.2 percent by the close of trade on Friday after shedding more than 1 percent earlier, as positive earnings momentum spurred buying in select stocks.
The Shanghai index has fallen about 13 percent from a 14-month intraday peak scaled last weak, as comments by the central bank about fine-tuning its loose monetary policy and a clampdown on new bank lending after a record rise fuelled worries over the ample liquidity that fuelled this year's stellar rally.
Lacklustre July economic data released this week further dampened the market's mood.
"The index has entered a correction phase and investors are maintaining a wait-and-see stance as worries linger over policy and the economic recovery, which is not on solid ground," said Zhang Xiang, Chief strategist at Guodu Securities. "Investors had been overly optimistic about what the July economic data would show. The index is likely to remain sluggish next week."
HONG KONG SHARES ON ROLLER-COASTER RIDE
The benchmark Hang Seng Index finished up 32.03 points at 20,893.33 as consumer goods exporter Li & Fung jumped 9.2 percent on an improved outlook for its second-half earnings.
Li & Fung finished at a 14-month closing high of HK$27.80 after it said profit would improve in the second half of the year amid early signs of an improving global economy, giving it confidence to reaffirm targets in its three-year plan.
Morgan Stanley upgraded the stock to "overweight" with a target price of HK$30, citing the company's effective cost-cutting strategy and stabilising macro-economic backdrop.
The main gauge managed to finish the week 2.5 percent higher after shuttling between 20400 points and 21,100 points
"Its looking less like a bull market and more like a monkey market, just jumping all over the place," said Peter Lai, director with DBS Vickers.
Lai said selling pressure intensified after index close above 21,000 points mid-week with investors looking for "bad news, or even less-good news" to start selling.
The China Enterprises Index, which represents top locally listed mainland Chinese stocks, closed unchanged at 11,899.80 but top insurer China Life shed 1.6 percent tracking steep losses on the Shanghai index.
China Life Insurance sank 2 percent to 28.37 yuan in Shanghai after saying it booked 191.1 billion yuan in insurance premiums in the first seven months of the year, down 5.8 percent from a year earlier.
China's Yanzhou Coal Mining Co jumped 2.3 percent to HK$12.40 after agreeing to buy Australian coal miner Felix Resources Ltd for $2.9 billion. The stock rose 3.7 percent to 20.72 yuan in Shanghai.
Credit Suisse estimated that the proposed acquisition would boost Yanzhou's earnings by 14 percent in 2010, and by 37 percent by 2011.
SHANGHAI SKIDS 6.6 PCT ON WEEK
The Shanghai Composite Index closed at 3,046.972 points, down 6.55 percent for the week after sinking 4.4 percent last week.
Losing Shanghai A shares outnumbered gainers by 820 to 120, while turnover for Shanghai A shares rose to 145.8 billion yuan ($21.3 billion) from Thursday's 138.2 billion yuan.
Everbright Securities Co, which raised 10.96 billion yuan in its Shanghai initial public offering last week, said it would list in Shanghai next Tuesday, while market talk circulated that another major brokerage was about to get final approval for an IPO.
"The best time for ample liquidity of funds has passed. With more share supply coming to the market, the correction may last until September," said Cai Junyi strategist at Shanghai Securities.
China Merchants Bank announced a rights issue to raise up to 18 billion yuan, with analysts saying the size may be one of the largest this year.
China Merchants Bank fell 2.38 percent to 17.26 yuan after saying it would raise 15 billion to 18 billion yuan via a rights issue of Hong Kong-listed H shares and Shanghai-listed A shares to boost its capital adequacy ratio.
"The fundraising plan hit when market sentiment was already weak ... The index will soon test 3,000 points," said Wu Nan, analyst from Xiangcai Securities.
But the stock rose 3.4 percent in Hong Kong as analysts said most of the impact of the news had already been reflected in the bank's stock price which fell nearly 8 percent in four sessions last month after Reuters reported its capital raising plans on July 8. (Editing by Edmund Klamann and Chris Lewis)