* Shanghai up 0.26 percent on government stimulus measures
* Profit-taking wipes out early Hong Kong gains
* Property stocks New World China and Sinolink tumble (Updates to midday)
By Nerilyn Tenorio and Lu Jianxin
HONG KONG/SHANGHAI, Oct 12 (Reuters) - Hong Kong shares had given up their initial gains to profit-takers by midday Monday, while some traders started discounting expectations for positive Chinese economic data due out later this week.
But mainland Chinese stocks remained in positive territory as the government took fresh steps to support the market, including expanding quotas for inbound portfolio investments by foreigners.
The Hong Kong bourse had been up for most of last week, when the Shanghai and Shenzhen bourses were closed for China's one-week National Holiday that ended on Friday.
"After last week's strong run-up (in Hong Kong), investors decided it was time for profit-taking," said Belle Liang, head of research at Core Pacific-Yamaichi International (HK) Ltd.
"Expectations for strong (China) economic data are now being discounted. What the market is starting to focus on now are third-quarter company earnings," she said.
The benchmark Hang Seng Index eased 0.09 percent to 21,479.37 points, off the session's high of 21,623.33, when early sentiment was buoyed by optimism for an improving China economy.
Turnover was down sharply at HK$22.7 billion ($2.9 billion) from midday Friday's HK$33.9 billion.
The Hang Seng China Ebnterprises index of mainland companies listed in Hong Kong was up 0.13 percent at 12512.18.
The early rally in Sinolink Worldwide Holdings shares fizzled, sending the stock down 12.25 percent to HK$1.79. It was up at a high of HK$1.88 earlier, after the property developer said 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 7.06 percent 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 jumped 9.86 percent to HK$0.39 after the coal producer agreed to acquire coal mines from Wonder Champion Investment Ltd for $300 million as it cashes in on surging demand for coal.
SHANGHAI
China's benchmark stock index had edged up 0.26 percent by midday, with banking stocks outperforming sharply.
The Shanghai Composite Index rose to 2,919.235 points as policy boosts helped to offset pressure from huge supplies of new shares, including listed stocks freed up after lock-up periods, and profit-taking after Friday's nearly 5 percent rise.
"Several official market-friendly measures helped the index maintain its rally on Friday, although not without difficulty," said Zhang Qi, senior analyst at Haitong Securities in Shanghai. "But investor sentiment is apparently weak amid huge supplies of new shares, and the market may have more downward than upward pressure in the near term."
Zhang and several traders said they expected the index to fall slightly for the rest of this week, barring major positive news, but they added that the index might find support at the 125-day moving average, now at 2,873 points.
Central Huijin, an arm of China's sovereign wealth fund, recently bought shares in China's three biggest listed banks and woyuld continue buying them over the next 12 months, the lenders said on Monday.
Top lender Industrial and Commercial Bank of China (ICBC) was one of the morning's most actively traded stocks, rising 1.82 percent to 5.03 yuan.
Construction Bank of China added 1.55 percent to 5.89 yuan. Bank of China rose 0.75 percent to 4.03 yuan.
Sinopec Corp edged 0.25 percent lower to 11.76 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.
Overall trading was sluggish, although turnover of Shanghai A shares rose to 57 billion yuan ($8.35 billion) from 51 billion yuan on Friday morning. Gaining stocks outpaced losers by 493 to 347.
Among the biggest gainers, Zhongzhu Holdings jumped its 10 percent daily limit to 13.95 yuan, after it said an asset injection by its parent would allow it to transfer its core business to property development from drug manufacturing. (Editing by Chris Lewis)