* Shanghai's key index down 0.6 pct on oversupply concerns
* HK index closes 0.9 pct lower, wiping out early gains
* Positive China data discounted, focus turns to Q3 earnings (Updates to close)
By Nerilyn Tenorio and Lu Jianxin
HONG KONG/SHANGHAI, Oct 12 (Reuters) - Chinese shares lost early gains to profit-takers on Monday, with worry over huge supplies of new shares from IPOs offsetting the impact of market-friendly central government measures on the mainland.
Some traders in Hong Kong started discounting expectations for positive Chinese economic data due out later this week, which had buoyed sentiment in the early session, and began focusing on third-quarter company earnings.
"The market will be watching out for the release of some earnings in the U.S. tonight, such as Intel, Johnson & Johnson," said Linus Yip, strategist at First Shanghai Securities. "Investors here will take their cue from the early trend in those figures and act on related or similar stocks that are listed here in Hong Kong."
The benchmark Hang Seng Index slipped 200.09 points or 0.93 percent to 21,299.35.
Turnover was down at HK$44.18 billion ($5.7 billion) from Friday's HK$62.2 billion, when appetite for shares was especially stimulated by debutant Wynn Macau.
The China Enterprises Index of top locally listed mainland Chinese stocks eased 0.96 percent to 12,375.93.
"The momentum was not that strong. There was not enough volume to carry it through," Yip said.
An early strong rally by Sinolink Worldwide Holdings fizzled, sending the stock down 17.16 percent to HK$1.69, off a high of HK$1.88 in the early session.
The property developer said earlier that it was placing shares with Asia Pacific Promotion Ltd to raise HK$525 million and boost its working capital. (http://www.hkexnews.hk/listedco/listconews/ sehk/20091012/LTN20091012016.pdf)
New World China Land tumbled 7.3 percent to close at HK$3.81 after it proposed a rights issue. The Chinese property arm of New World Development said late on Friday that it planned to raise up to $683 million to refinance existing debt.
JP Morgan downgraded New World China to "underweight" from "neutral", while Macquarie Securities downgraded the stock to "neutral" from "outperform" to take into account the dilutive impact of the rights issue.
Asia Coal trimmed its gains to 4.23 percent from a peak of 18.3 percent, ending at HK$0.370. The coal producer had agreed to acquire coal mines from Wonder Champion Investment Ltd for $300 million as it cashes in on surging demand for coal.
A FLOOD OF SHARES
China's key stock index closed 0.59 percent lower on Monday, led by Sinopec Corp, as huge supplies of new shares, including listed stocks freed up after the end of lock-up periods, offset the positive impact of market-friendly government steps.
The Shanghai Composite Index finished at 2,894.483 points, also hit by profit-taking pressure after Friday's nearly 5 percent rise.
Sinopec closed down 1.61 percent at 11.60 yuan as 57 billion shares worth 670 billion yuan ($98 billion), or 66 percent of its total share capital, were converted to free float on Monday after a lock-up period expired.
A monthly record of around 2 trillion yuan in non-tradeable state and institutionally held shares are moving into free float in October after the end of lock-up periods.
In addition, 19 companies are taking subscriptions for initial public stock offerings this week, with 18 aiming to list on China's planned Nasdaq-style second board, ChiNext, which is expected to be launched this month.
State media estimated the IPOs would attract a combined 1.6 trillion yuan in subscription funds.
"The supply of new shares is too much," said Zheng Weigang, head of investment at Shanghai Securities. "Still, the index should have limited room to fall with the government's policy support."
Zheng and other traders said they expected the index to find support at the 125-day moving average, now at 2,873 points.
In positive news, China has formally relaxed rules on inbound portfolio investment, raising the maximum sum a single Qualified Foreign Institutional Investor (QFII) may invest to $1 billion from $800 million, the State Administration of Foreign Exchange (SAFE) said at the weekend.
Central Huijin, an arm of China's sovereign wealth fund, recently bought and would continue buying shares in China's three biggest listed banks over the next 12 months, the lenders said on Monday.
The news pushed top lender Industrial and Commercial Bank of China up 0.4 percent to 4.96 yuan, although it ended off its intraday high because of weakness in the broader market.
Overall trading was sluggish, although turnover of Shanghai A shares rose to 99 billion yuan from Friday's 93 billion yuan. Gaining stocks narrowly outpaced losers by 442 to 406.
Loss-making Huda Technology was the day's biggest loser, falling 4.97 percent to 14.35 yuan as investors expected it to post a loss for the January-September results period, traders said. Chinese companies are required to report their earnings up to September before the end of this month. ($1=HK$7.75, 6.83 yuan) (Editing by Chris Lewis)