* HSI up 0.12 pct, supported by oil, commodity stocks
* Shanghai market slips 0.5 pct on policy, supply worries
* Chinese drug stocks strong on possible merger deal
(Updates to midday)
By Nerilyn Tenorio and Claire Zhang
HONG KONG/SHANGHAI, Oct 16 (Reuters) - Hong Kong stocks eked out modest gains before profit-takers levelled the benchmark index around midday Friday,
But underlying support came from oil and commodities shares, which remained up on higher crude prices and a weak U.S. dollar.
In Shanghai, the key stock index slipped 0.53 percent, faltering further at a key chart resistance level as share supplies and central bank comments highlighting a time limit to China's easy policy stance weighed on sentiment.
"People are unwilling to buy at this point," said Steve Cheng, Shenyin Wanguo Securities associate director in Hong Kong.
"The market may be consolidating in the 21,800-22,200 range in the short term," he added.
The benchmark Hang Seng Index edged up 26.63 points to end the morning session at 22,025.71, after it hit a 14-month closing high on Thursday for the second straight day. Turnover was HK$34.1 billion ($4.4 billion) compared to midday Thursday's HK$48.8 billion.
The China Enterprises Index of top locally listed mainland Chinese companies edged down 0.04 percent at 12,855.11.
But oil stocks stayed firm, outperforming the market on the back of rising crude oil prices.
CNOOC Ltd rose 1.2 percent to HK$12.16 and PetroChina gained 1.0 percent to HK$10.10.
China Resources Enterprise rallied 4 percent to HK$25.95, leading gainers across the board, on a potential stake sale to fashion retailer Esprit Holdings. Esprit's chairman said his company was considering buying from China Resources the remaining stake in their China joint venture.
Cathay Pacific initially rose as much as 1.8 percent in reaction to the latest International Air Transport Association report that Asian airlines were starting to sell more premium as well as economy seats. But the stock reversed course and lost 0.89 percent due to higher fuel prices.
Hong Kong-based holding firm Kaisun Energy jumped 6.5 percent to HK$1.48 after it said on Thursday that it would buy out a Russian oilfield company, Nobel Holdings Investments, invested in by China Investment Corp.
SHANGHAI
The Shanghai Composite Index ended the morning down at 2,963.862 points after rising as far as 3,008.179, breaching but failing to hold above the psychologically important 3,000-point level for a third straight session.
Losing Shanghai A shares outnumbered gainers by 632 to 291, while turnover dropped to 54 billion yuan ($8 billion) from Thursday morning's 62 billion yuan.
China's central bank gave the first public indication that it was thinking about when it could move away from its year-old ultra-loose monetary policy in comments by People's Bank of China chief Zhou Xiaochuan published in state media on Friday morning.
"Zhou's comments were taken as a negative signal by investors," said Wu Nan, analyst at Xiangcai Securities in Shanghai.
Analysts said investors were cautious given the prospects for increased share supply and ahead of third-quarter economic data due for release in the latter half of next week.
"The index isn't likely to move much higher or lower, but will probably fluctuate around the key 3,000 mark, with shrinking turnover suggesting that investor sentiment is cautious," said Zhang Gang, strategist at Central Securities in Shanghai.
Drug makers were strong following news of a merger deal in the sector.
Shanghai Pharmaceutical, Shanghai Zhongxi Pharmaceutical and Shanghai Industrial Pharmaceutical Investment jumped their 10 percent daily limit after announcing a merger plan which analysts said could boost earnings. They had been suspended from trade since June 17. The benchmark index is up 5.5 percent since then.
Kunming Pharmaceutical jumped 8.54 percent to 10.30 yuan after said its net profit in the third quarter climbed 404 percent year-on-year.
Top Asia refiner Sinopec lost 1.09 percent to 11.85 yuan after a massive 57 billion shares became tradeable on Friday after the expiry of a lock-up period.
Analysts said the shares, however, were largely in the hands of a major shareholder that was unlikely to cut its stake, so the long-term impact on Sinopec's share price should be limited. (Editing by Jonathan Hopfner)