* HK stocks drop in late session ahead of U.S. jobs data
* Shanghai stocks power ahead of 13-month closing high
* Chinese insurers outperform on Shanghai market rally
By Parvathy Ullatil and Claire Zhang
HONG KONG, July 2 (Reuters) - Chinese stocks rose 1.7 percent to a 13-month closing high in heavy trade on Thursday, with energy and metals shares strong as investors gained confidence in the recovery of the world's third-largest economy.
But Hong Kong shares dropped on their first trading day of the third quarter, shedding early gains as the mood in the market swung from optimism over upbeat manufacturing data to caution ahead of key U.S. jobs data.
Defying the slump in the broad market Chinese insurers jumped on Thursday as the surging Shanghai Composite Index raised hopes for strong investment income at insurance companies in 2009 after last year's market meltdown.
China's second-biggest insurance company Ping An climbed 3.3 percent in Hong Kong, while its Shanghai-listed stock advanced 5.2 percent to 54.98 yuan extending Wednesday's 5.68 percent rise. The Shanghai benchmark index which rose above 3,000 points for the first time in more than a year on Wednesday has rebounded over 68 percent so far this year following last year's market meltdown.
HSI IN ROLLER COASTER RIDE
The benchmark Hang Seng Index finished down 200.68 points at 18,178.05 after starting the day at 18,780.96 only to reverse course in the afternoon.
The U.S. employment report, due on Thursday as U.S. markets will be closed on Friday for the Independence Day holiday, is expected to depict an economy still wallowing in recession, but will likely confirm that the pace of job losses has slowed.
Turnover picked up pace, rising to HK$68.4 billion from Tuesday's HK$65.1 billion but worries persisted about the lack of momentum on the market.
"There is concern that turnover in the second half will measure up to that in the last few months. There are very few investors interested in buying when the market is hovering around 19,000 points," said Castor Pang, strategist ith Sun Hung Kai Financial.
Blue chips pulled back with UK's biggest bank and local index bellwether HSBC Holdings sliding 2.6 percent after a weak start on the European markets.
Property stocks, which actively participated in the main index's over 35 percent surge in the second quarter, retreated, with conglomerate Swire Pacific giving up 6.6 percent.
The China Enterprises Index, which represents top locally listed mainland Chinese stocks, inched up 0.1 percent to 10,971.89.
KWG Property dropped after it said it would sell 300 million new shares, or 10.37 percent of its enlarged share capital, to its controlling shareholder at an 8.6 percent discount to the closing price of HK$5.58 on June 29.
The stock slid 6.5 percent to HK$5.22 after trading resumed on Thursday.
SHANGHAI STOCKS STEAM AHEAD
The Shanghai Composite Index ended up 52.104 points at 3,060.254. Gaining Shanghai A shares outnumbered losers by 612 to 298, while turnover in Shanghai A shares rose to a three-month high of 180.6 billion yuan ($26.4 billion) from Wednesday's 153.2 billion yuan.
Fan Gang, an economist who advises the central bank, said late on Wednesday that China's economic recovery was sustainable and exports would grow again, from a low base, by the end of the year.
"Investors turned cautious after the index rose above 3,000 points but signs of economic recovery could lift the index higher," said Western Securities analyst Cao Xuefeng.
He added, however, that new IPOs, including a relatively major offering by Sichuan Expressway that had just received final approval regulatory approval, would encourage profit taking as they threatened to divert funds from the rest of the market.
Energy and metal shares led the day's gains, with China Shenhua Energy jumping 4.3 percent to 31.80 yuan, while Sino Platinum Metals raced up by its 10 percent daily limit to 24.98 yuan.
PetroChina, Asia's top oil and gas producer and the most heavily weighted stock in the index, advanced 3.3 percent to 15.06 yuan after the South China Morning Post reported that its parent company planned to revive a $17 billion bid for the Argentinian unit of Repsol-YPF.
Bank of China rose 0.7 percent to 4.66 yuan, after rising more the 3 percent the day before when Central Huijin, an arm of the country's $200 billion sovereign wealth fund, indicated it would not cut its holdings in the bank when a lock-up period on its shares expires this weekend. (Editing by Edmund Klamann and Chris Lewis)