* Chalco tumbles 5.3 pct; Beijing Cap jumps 8.5 pct
* Fears of Beijing fiscal tightening dismissed by analysts
(Updates to midday)
By Nerilyn Tenorio & Lu Jianxin
HONG KONG/SHANGHAI, Aug 25 (Reuters) - Hong Kong and Shanghai shares fell as profit-takers took advantage of market anxiety over the mainland government's tightening of fiscal and monetary policies, cashing in gains from recent rallies.
Stocks retreated across the board on both bourses, including even some financial companies that were expected to report healthy earnings later in the day.
"The Hong Kong market just followed the fall in mainland stocks as people were anxiously watching the mainland government's next fiscal policy move," said Steve Cheng, associate director at Shenyin Wanguo Securities.
"The tightening of policy is already happening, but the extent of the move isn't something that should cause fear as we see it as just reasonable," he said.
HONG KONG
The benchmark Hang Seng index dropped 1.1 percent to end the morning session at 20,307.41 points. The China Enterprises Index, which represents top locally listed mainland Chinese stocks, was down 1.3 percent at 11,552.05.
China Life, which is due to report robust second-quarter earnings, hit a low of HK$32.40 during the session, before settling 0.45 percent firmer at HK$33.20.
Chalco was hit hard by disappointment over its third consecutive quarterly loss due to weak demand and low prices of aluminium used in transport and packaging. The stock posted as much as a 5.3 percent loss before ending the morning session down 2.5 percent at HK$8.89.
China Construction Bank lost 1.5 percent, dragged by the market's weakness, even after the lender said on Monday it hopes to report a rise in profit for 2009 after the decline in net interest margins that weighed on its first-half earnings almost bottomed out.
Sinotruk slid 3 percent after it said its 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 exports of finished trucks were hit by the global financial crisis.
Jiangxi Copper dropped 2.5 percent after it posted a 58.8 percent fall in first half profit to 1.27 billion yuan. It said copper prices were unlikely to experience any substantial falls as demand increases while the economy recovers.
Beijing Capital Land gained 8.5 percent after it said it had applied for a Shanghai listing via the 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
China's benchmark stock index fell more than 3 percent on Tuesday, led by banking stocks, after Premier Wen Jiabao said China would keep its monetary policy loose as the economy faces new difficulties, including trouble boosting domestic consumption.
In a downbeat statement published after the market closed on Monday, Wen said Beijing would ensure a sustainable flow of credit and a reasonably sufficient provision of liquidity to support growth.
The Shanghai Composite Index fell 3.5 percent to 2,887.74 points after midday. It staged a technical rebound over the past three trading days after a 20-percent slide in the two weeks to last Wednesday's close, spurred by profit-taking and worries over fresh share supplies among other factors.
Traders said Wen's comments cast fresh uncertainty over China's economic recovery, which showed signs of slowing in July after solid improvement in the first half. Such uncertainty might limit the room for stocks to rebound in the near term.
At the same time, however, signs of a possibly quicker-than-expected global economic recovery might gain increasing influence over China's stock market, traders said.
"While Wen's comments contained nothing surprising, investors are cautious about the prospects for China's economic recovery," said Gui Haoming, head of research at Shenyin & Wanguo Securities in Shanghai.
"The pace of the global economic recovery will exert increasing influence over China's stock market, although its impact will still be indirect."
China's commodity futures market has taken the lead in this trend, with optimism over global recovery replacing optimism on a Chinese recovery as the biggest single factor pushing copper futures to close limit-up on Monday. The futures then rose slightly in morning trade on Tuesday.
Industrial Bank tumbled 6.7 percent to 34.19 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.
Its weak performance spilled over to other banks. Top lender Industrial and Commercial Bank of China dropped 3.1 percent to 4.69x yuan while China Construction Bank fell 2.9 percent to 5.61 yuan.
Technically, the index's fall on Tuesday could reflect a need to build a double-bottom on the charts to confirm an effective break through the short-term five-day moving average, now around 2,900 points, after it closed above that level for three trading days.
If the index proves to have firmly breached that level it will head for and test resistance at the medium-term 60-day moving average, now slightly above 3,000, in coming weeks.
Many analysts doubted it would fall further to test its recent low of 2,761 points, hit last Wednesday, given that the 14-day relative strength index (RSI) was still moving near the oversold area.
Shanghai-listed A shares of Aluminum Corp of China (Chalco) fell 4.6 percent to 14.89 yuan after it posted a bigger-than-expected net loss for the second quarter. (Editing by Edmund Klamann and Jonathan Hopfner)