* HSI retreats 1.4 percent to five-week low, tests support
* Shanghai Composite down 2.3 pct, biggest drop since late Feb
* Investors continue to dump energy, materials plays, favour IPPs
* China Resources Power up 10 pct in 3 sessions to six mo high
* PBOC statement on draining funds from financial system weighs (Updates to midday)
By Vikram Subhedar and Clement Tan
HONG KONG, May 4 (Reuters) - China's stocks fell to a two-month low on Wednesday as investors dumped commodity-related sectors for a sixth straight session, but Hong Kong stocks closed above key chart support, suggesting the market's decline will not accelerate in coming days.
Utilities, in particular independent power producers, outperformed for a third session in Hong Kong with the sector sub-index closing flat for the day as impending power shortages in China over the summer raise expectations of strong demand for power and possible tariff hikes.
The Shanghai Composite Index fell 2.3 percent to 2,866 points, while the Hang Seng Index shed 1.4 percent to 23,315.
At one point China's main stock index hit its lowest in more than two months as resources stocks led a broad decline, tracking an easing in global commodities prices in a market bereft of positive cues amid heightened fears of fresh policy tightening.
In Hong Kong, China Resources Power Holdings Co Ltd led the charge for utilities, rising 2.9 percent to a six-month high, on over four times its average 30-day traded volume.
The China Electricity Council, a group representing power firms that operates under the supervision of the State Electricity Regulatory Commission, forecast around 30 gigawatts of power shortfalls nationwide in summer, but 12 of 31 Chinese provinces alone have forecast some 40 GW deficits, similar to the gap in 2004. [ID:nL3E7FS2O4]
But an absence of support from other heavyweight sectors such as financials , which fell 1.3 percent, and energy , which lost 2.1 percent, pushed the Hang Seng below its 50-day and 100-day moving averages, at 23,450 and 23,433.5 respectively.
The index did find support just before the close at the 50 percent retracement level of its entire move up from the March low following the Japan earthquake to the 2011 peak of 24,468.6 hit April 8.
"Its a game of patience at the moment. A few people are getting pretty frustrated that the market is ignoring good news such as earnings," said Tom Kaan, a director at Louis Capital Markets in Hong Kong.
"At this stage they'd rather lock in gains as some of the long-Aussie and long-commodity trade seems to be unwinding," said Kaan, adding that the next cue for a sustainable leg up for Hong Kong and China is probably going to come from a policy announcement out of Beijing.
Chinese banks remained on the backfoot despite reporting a robust set of first-quarter results last week. [ID:nL3E7FS29B]
ICBC fell 2 percent and China Construction Bank 1.7 percent, followed by oil producer CNOOC , as the top drags on the Hang Seng. CNOOC shares fell 2.6 percent.
SHANGHAI SLUMPS TO 2-MONTH LOW, FUNDS WARY
The People's Bank of China said late on Tuesday there is no limit to how high Chinese banks' required reserves may go because it is a key tool in managing the volume of cash in the economy and it must be flexibly applied.[ID:nB9E7F1034][ID:nL3E7G403Y]
More talk of tightening by the PBOC and 7-day repo rates starting to climb again above 3% which signals higher funding costs for small, leveraged banks is creating some "noise" in the market, said Christian Keilland of BTIG in Hong Kong in an emailed note.
The Shanghai energy sub-index underperformed the broader market, losing 4.6 percent compared with a 2.3 percent fall to 2,866.0 on the benchmark Shanghai Composite Index .
PetroChina Co Ltd , China Shenhua Energy Co Ltd and China Petroleum & Chemical Corp (Sinopec) were the biggest drags, losing 2.2, 5.7 and 2.4 percent respectively.
"Falling oil prices are affecting oil shares today, dragging along other energy issues," said Haitong Securities analyst Zhang Qi.
Zhang said funds were unwilling to enter a market that seems stuck in a downtrend since the benchamrk hit its 2011 high in mid-April.