* HK shares drop 1 pct on week; snap three-week rally
* China shares record worst weekly drop in five months
* China Mobile gains for 2nd day on Shanghai-listing talk (Updates to close)
By Parvathy Ullatil and Claire Zhang
HONG KONG/SHANGHAI, Aug 7 (Reuters) - China and Hong Kong shares pulled back sharply on Friday on worries the mainland authorities will take measures to choke off the liquidity that has fuelled the stellar rally on the mainland bourses.
People's Bank of China Vice-Governor Su Ning told a news conference after the Shanghai market closed on Friday that China's bank lending would slow in the second half, but that monetary policy would remain moderately loose with fine-tuning via market tools.
The monetary policy comments echoed a quarterly central bank report earlier this week that helped to trigger the market's three-day decline.
"When the market is already this high, it is only understandable that investors believe there will be some monetary tightening instead of ignoring the possibility," said Ben Kwong, chief operating officer with KGI Asia.
CHINA MOBILE, GOME IN FOCUS
Heavyweight China Mobile rose for a second day, scaling a nearly 12-month high earlier in the session, gaining 1.7 percent to HK$88.55 as speculation mounted over a Shanghai-listing for the company.
The volume of shares traded was nearly triple the daily average, while the stock accounted for nearly 10 percent of total turnover on the exchange. Citigroup raised its target price on the stock to HK$99 saying a Shanghai-listing would provide a real boost to the company's valuations.
The benchmark Hang Seng Index closed down 2.5 percent or 523.87 points at 20,375.37. The gauge fell 1 percent on the week, snapping a three-week winning streak.
The China Enterprises Index, which represents top locally listed mainland Chinese stocks, was 3.7 percent lower at 11,612.18, with China Construction Bank leading losses. Shares in the world's second-largest bank by market value dropped 3.2 percent.
GOME Electrical Appliances plunged more than 9 percent after a Hong Kong court ordered a freeze on the assets of its former chairman, Huang Guangyu. The stock ended ended 7.9 percent after climbing more than 150 percent since private equity firm Bain Capital agreed to invest in the company in June.
Huang is being investigated for alleged economic crimes. He and his wife were suspended from their executive duties at the electronics retailer last year.
Manulife dropped 9.4 percent, tracking a steep drop in its Toronto-listed stock overnight, following a surprise decision to cut its dividend in half. Canada's largest insurer reported a 75 percent profit jump on Thursday, beating analysts' expectations.
BIGGEST WEEKLY DROP IN FIVE MONTHS
Chinese stocks fell 2.85 percent on Friday and posted their their biggest weekly drop in five months, with large cap shares slumping on worries about tighter market liquidity as the government clamps down on lending after record first-half growth.
"The market interprets the fine-tuning as government concern over excessive asset prices, and with stock valuations indeed very high now, institutions have been restricting investment," said Zheng Weigang, head of the investment desk at Shanghai Securities.
The Shanghai Composite Index ended at down 95.64 points at 3,260.690, down 4.4 percent for the week.
Losing Shanghai A shares outnumbered gainers by 823 to 107, while turnover for Shanghai A shares dropped to a three-week low of 184.3 billion yuan ($27.0 billion) from Wednesday's 240.3 billion yuan.
Shanghai shares trade at an average of 32 times forecast 2009 earnings, more than double the average price/earnings ratio in the Hong Kong market.
The Shanghai index's 14-day Relative Strength Index has eased toward 50, however, meaning the correction has washed out most of profit-taking pressure for the short term.
Metal and property shares were down, with Aluminum Corp of China Ltd sliding 7.6 percent to 17.48 yuan, while Zhongfu <600595.SS> sank 9.6 percent to 22.92 yuan after soaring 100 percent in July. Property developer China Vanke lost 4.1 percent to 12.75 yuan.
The Chinese authorities, increasingly worried that brisk lending may be fuelling market speculation and possible asset price bubbles, are expected to use stricter capital requirements and other means to tighten lending controls.
The official China Securities Journal reported that several mutual funds said Chinese regulators were becoming more cautious about approving funds that track the CSI 300 Index of blue-chip stocks, against which many equity funds are benchmarked and which has doubled in value this year.
"It's not easy for investors to make money now, with a possible slowdown in the pace of fund approvals coinciding with the slight adjustment in the tone of the central bank's report," said Xiangcai Securities analyst Li Shiming. (Editing by Edmund Klamann and Chris Lewis)