* Profit-taking weighs on early session
* Selling overdone, index downside now limited - analysts
* Chalco, Jiangxi Copper pare losses
* HSI off low; Shanghai index ends above five-day average (Updating to close)
By Nerilyn Tenorio & Lu Jianxin
HONG KONG/SHANGHAI, Aug 25 (Reuters) - Hong Kong stocks trimmed their losses to end 0.49 percent lower on Tuesday after earlier tracking Shanghai's retreat on profit-taking following recent rallies.
Shanghai shares suffered a bigger 2.59 percent loss, although finishing off the day's lows, led by banking stocks, as repeated sell-offs this month encouraged disillusioned investors to take the profit and exit the market.
But analysts said the downturn may be temporary and hopes reamined that the market would soon stabilise.
"Investors were skittish and looking for trouble anywhere so they could have an excuse to take profit because the market has had a good run," said Howard Gorges, vice-chairman at South China Brokerage.
CHINA LIFE REBOUNDS
The benchmark Hang Seng Index finished down 100.7 points at 20,435.24, off a low of 20.143.51.
The China Enterprises Index of top mainland companies was down 0.42 percent at 11,654.81.
China Life, which is due to report robust second-quarter earnings, hit a low of HK$32.40 during the morning session, before settling up 0.6 percent at HK$33.20.
Chalco was hit hard initially by disappointment over its third consecutive quarterly loss on weak demand and low prices for aluminium used in transport and packaging. The stock declined as much as a 5.3 percent before ending the day down 1.9 percent at HK$9.04.
Sinotruk settled 4 percent lower after it said profit attributable to shareholders dropped 39.8 percent year on year to 462 million yuan ($67.63 million) and its heavy duty truck sales volume fell 21.4 percent to 53,195 units as finished trucks exports were hit by the global financial crisis.
Jiangxi Copper shaved its losses for the day to 0.69 percent from an early-session fall of 3.7 percent, after it posted a 58.8 percent drop in first-half profit to 1.27 billion yuan. It said copper prices were unlikely to experience any substantial falls as demand continued to improve.
Beijing Capital Land gained 6.7 percent after it said it had applied to list in Shanghai via an issue of up to 1.4 billion new A shares to help finance a total of 9.55 billion yuan ($1.40 billion) worth of projects.
SHANGHAI HOPES
China's benchmark stock index closed 2.59 percent lower on Tuesday, led by banking stocks.
But analysts said the index's smart bounce from its intraday low, combined with a technical need after recent gains to probe lower and build a double-bottom on the charts, kept hopes alive that the market would soon stabilise.
"With no major negative news in sight and technical trading dominating, the index should have limited potential to fall below its recent low (of 2,761 points hit last Wednesday)," said Zheng Weigang, head of investment at Shanghai Securities.
The Shanghai Composite Index closed down 77.626 points at 2,915.803, finishing the day above the five-day moving average, now around 2,900 points, for the fourth straight session and virtually confirming the establishment of a double bottom, which was likely to pave the way for a technical rebound, analysts said.
The index should rise to test the medium-term 60-day moving average, now slightly above 3,000 points, in coming weeks, they said.
Losing Shanghai A shares outnumbered gainers by 652 to 233 on Tuesday, but turnover for Shanghai A shares jumped to a relatively active 160 billion yuan ($23 billion) from Monday's 138 billion yuan -- a good omen for the market as investors appeared to be more willing to build fresh positions.
Industrial Bank closed 7.1 percent lower at 34.04 yuan after it posted a disappointing 4.9 percent drop in net profit to 6.22 billion yuan ($911 million) in the first half from a year earlier.
In intraday trading, the stock tumbled by its 10 percent daily limit, dragging the share prices of other banks lower.
Industrial and Commercial Bank of China ended down 2.9 percent at 4.70 yuan, while China Construction Bank (CCB) fell 4.3 percent to 5.53 yuan.
A CCB spokesman said the lender had no plans to raise money to increase its capital-adequacy ratio after its shares tumbled nearly 7 percent at one point, as some punters might have used the talk to push down CCB shares.
Premier Wen Jiabao, in a downbeat statement published after the market closed on Monday, said China would keep its monetary policy loose as the economy faced new difficulties, including trouble boosting domestic consumption.
While most investors believed Wen's comments contained nothing surprising, worries over a possible slowing of China's economic recovery were used as an excuse to launch a fresh round of selling, traders said.
"In China's market, it's always those investers who eye an overnight fortune who take the lead in dumping shares when the market becomes unstable," said a senior trader at Guotai Junan Securities in Shanghai.
"Generally speaking, their withdrawal will not result in a prolonged market slump, but it will often keep the market in a standstill for weeks, if not months."
On Tuesday afternoon, the benchmark index tumbled as much as 5.67 percent to an intraday low of 2,823.637 but was still well above last Wednesday's low.
The index had staged a rebound over the past three trading days after a 20-percent slide in the two weeks to last Wednesday's close, which was spurred by profit-taking and worries over fresh share supplies, among other factors.
Shanghai-listed A shares of Aluminum Corp of China (Chalco) closed down 2.9 percent at 15.13 yuan after it posted a bigger-than-expected net loss for the second quarter. [ID:nHKG50420] ($1 = 6.83 yuan) (Editing by Jacqueline Wong and Chris Lewis)