* China shares fall on inflation concern, despite data
* Hong Kong stocks down as finance, telecom plays weigh
* Esprit down on weak sales; Little Sheep up on Yum's move (Updates to midday)
By Donny Kwok, Claire Zhang and Edmund Klamann
HONG KONG/SHANGHAI, Oct 22 (Reuters) - Hong Kong and China stcoks fell on Thursday, weighed down by concerns about inflation and possible monetary tightening ahead as economic data came in strong, as expected, bolstering confidence for economic recovery.
China's key stock index edged down 0.05 percent on Thursday with the Shanghai Composite Index ending the morning at 3,068.972 points, although gaining Shanghai A shares outnumbered losers by 486 to 374, while turnover slipped to 64 billion yuan ($9.4 billion) from Wednesday morning's 77 billion yuan.
China's annual GDP growth accelerated to 8.9 percent in the third quarter from 7.9 percent in April-June, in line with forecasts, buoyed by strong investment spending and bank lending that more than made up for a slump in exports.
"The data was as strong as expected so the index was stable this morning, but government comments about keeping a close eye on controlling inflation suggest inflation pressures are increasing and monetary policy may move toward tightening," said Wen Lijun, an analyst at Nanjing Securities.
She added that firm third-quarter earnings could support the index above 3,000 points although it may slip back to its 60-day moving average, now at 3,027 points, as it consolidates, with the government comments highlighting inflation outweighing the strong economic data.
A National Bureau of Statistics spokesman told a news conference: "At present China faces no inflation problem, but China must pay close attention to inflation expectations."
Deflation eased in September, with consumer prices falling only 0.8 percent from a year earlier, compared with a 1.2 percent drop in August, Thursday's data showed.
China's State Council, or cabinet, late on Wednesday voiced confidence that the economy had recovered from the global financial crisis, sending its clearest signal yet that it might gradually unwind its ultra-loose pro-growth policies.
The country's biggest lender, Industrial & Commercial Bank of China, was flat at 5.14 yuan.
Steel shares were soft, with industry leader Baoshan Iron and Steel down 1.11 percent at 7.10 yuan. The official China Securities Journal reported that iron ore prices may rise 30 percent in 2010. Foshan Plastics Group climbed 7.59 percent to 9.07 yuan after saying it had expanded a project with Chinese electric car and battery maker BYD Co Ltd, which it forecast could contribute 62.5 million yuan to net profit after tax each year.
HONGKONG DOWN AS FINANCE, TELECOMS WEIGH
Telecommunications and financial shares weighed on the Hong Kong market after weak earnings at telecoms providers and a broker downgrade of top U.S. bank Wells Fargo triggered selling of finance-related shares including banks.
ICBC, China's largest bank, fell 1.74 percent to HK$6.22. China Construction Bank, the country's second-biggest lender, lost 1.31 percent to HK$6.80.
China Mobile, the world's largest mobile carrier, fell 1.29 percent to HK76.25 and China Telecom, China's top fixed-line phone company, lost 2.96 percent to HK$3.61.
"The market turned cautious and positive sentiment weakened when no breakthrough on the upside was noted," said Alex Tang, a director at Core Pacific-Yamaichi International. "The market needs fresh incentives for further gains."
Brokers said abundant liquidity beccause of the weak U.S. dollar could lend support to the market, especially as the latest round of data boosted optimism over China's economic outlook.
The benchmark Hang Seng Index fell 1.06 percent or 235.82 points to 22,082.29 at midday.The China Enterprises Index of top locally listed mainland Chinese companies was down 1.32 percent at 12,830.01.
Turnover increased to HK$39.32 billion ($5.1 billion) from midday Wednesday's HK$35.43 billion.
Hong Kong's central bank, the Hong Kong Monetary Authority, injected HK$5.038 billion ($650 million) into the money market on Thursday to stem an appreciating Hong Kong dollar as the territory continued to attract fund inflows.
Clothing retailer Esprit Holdings fell to a session low HK$53.10 before steadying at HK$53.55. Esprit said its sales fell 8 percent in the quarter ended September amid weak global demand. A Deutsche Bank research note on Thursday said it had maintained a "buy" rating on the stock as performance was largely on track.
Restaurant chain operator Little Sheep Group rose to a record high of HK$4.69 before steadying at HK$4.40, still up 1.62 percent from the previous close. The operator said Yum! Brands Inc would raise its stake in the company to 27.3 percent from 20 percent for about HK$300 million ($39 million) and would remain the second-largest shareholder after the deal.
A Bank of America Merrill Lynch research note on Thursday said the deal underscored Yum's interest in Little Sheep and could help with investor sentiment. (Editing by Chris Lewis)