(Updates to midday)
HONG KONG/SHANGHAI, Aug 14 (Reuters) - China stocks slid 2.4 percent on Friday, knocking Hong Kong shares off their firm start, as worries about new supplies of shares joined a list of concerns that left this year's rally looking overdone.
Financial shares dragged the index lower amid market talk that one major Chinese brokerage would soon list its shares in Shanghai and another was about to get approval for an IPO, while a major bank announced an expected rights issue.
The Shanghai Composite Index was headed for a 6 percent drop for the week, its worst in more than five months.
"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."
Here are the index moves and top stock moves in both markets by midday-
HONG KONG
* The benchmark Hang Seng Index was 0.8 percent lower at 20,696.55 after opening 0.8 percent higher.
* "After the index hit 21,000 points investors began to look for bad news, or even less-good news to start selling. Selling pressure has really built up at that level," said Peter Lai, director with DBS Vickers.
* Consumer goods exporter Li & Fung jumped 7.7 percent to HK$27 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 China Enterprises Index, which represents top locally listed mainland Chinese stocks, was down 1.1 percent at 11,773.48 led by a 1.9 percent drop in top insurer China Life.
* China Life Insurance sank 2.0 percent to 28.38 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 2.6 percent to HK$12.44 after agreeing to buy Australian coal miner Felix Resources Ltd for $2.9 billion. The stock rose 4.5 percent to 20.88 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 Forte Land gained 1.7 percent after the company said it aimed to list in Shanghai through an issue of 285 million A shares. Proceeds from the sale would be used to fund property development projects and to replenish working capital, the company added.
SHANGHAI
* The Shanghai Composite Index ended the morning down 2.37 percent at 3,066.092 points.
* Losing Shanghai A shares outnumbered gainers by 794 to 142, while turnover in Shanghai A shares dropped to 73.4 billion yuan ($10.7 billion) from Thursday morning's 75.3 billion yuan, reflecting the recent cautious mood toward the market.
* Analysts cited a widespread market rumour that China Everbright Securities, which raised 10.96 billion yuan ($1.60 billion) in its Shanghai initial public offering last week, will list its shares in Shanghai next Tuesday, while rumours circulated that another brokerage IPO could be approved soon.
* China Merchants Bank Co fell 2.3 percent to 17.27 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.
But the stock rose 2.6 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.
* "The fundraising plan has hit when market sentiment is already weak ... The index will soon test 3,000 points," said Wu Nan, analyst from Xiangcai Securities.
* The index has fallen about 12 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 90 percent rally.
Lacklustre July economic data released this week further dampened the market's mood. (Reporting by Parvathy Ullatil in HONG KONG and Claire Zhang in SHANGHAI; Editing by Edmund Klamann and Chris Lewis)