(Refiles to fix dateline)
* China shares down 0.5 pct, inflation fears in focus
* HK shares up 1.7 pct, but upward trend momentum uncertain
* Financials, Hutchison outperform in Hong Kong (Updates to midday)
By Yixin Chen and Clement Tan
SHANGHAI/HONG KONG, March 30 (Reuters) - Financial counters led broad gains in Hong Kong shares on Wednesday morning, fuelled by end-of-quarter settlements as risk appetite improved on favorable corporate earnings.
Hutchison Whampoa Ltd , billionaire Li Ka-shing's flagship ports-to-telecoms company, climbed by as much as 5.4 percent after posting forecast-beating 2010 earnings partly driven by a turnaround in its 3G telecommunications arm. [ID:nH9E7EL01O] It was up 4.8 percent by the midday trading break.
The benchmark Hang Seng Index was up 1.71 percent at 23,453.6 at the midday trading break. The index closed down in low volume the first two days of the week after gaining 3.8 percent last week.
"It's too early to say if this upward movement will be sustained because we face a lot of uncertainty going into April," said Ben Kwong, KSI Asia Ltd's chief operating officer. "Particularly with Japan, China's inflation, the Euro debt crisis and geopolitical risks in the Middle East to contend with."
The caution was evident in the China markets. The Shanghai Composite Index finished down 0.5 percent at 2,943.8 points at midday Wednesday on lingering worries over possible further monetary tightening next month.
China's main stock index fell 0.9 percent on Tuesday.
The official China Securities Journal said on the front page that higher-than-expected liquidity was likely to push the People's Bank of China to launch further monetary tightening policies in April.
Some analysts, however, said any further policy tightening would benefit Chinese banks.
"Policy risks are good for banks," said May Yan, Barclays Capital's head of research for China banks. "The more the Chinese central bank tightens, the more the banks will charge because of tightening liquidity."
Yan said strong first-quarter earnings at the end of April would give some upside room for Chinese bank's H shares.
Ping An Insurance (Group) Co of China Ltd , the world's No.2 life insurer by market value, reported earnings that lagged expectations but was still up 3 percent in Hong Kong by midday.
"Valuations of insurance companies go beyond earnings, potential for new business growth is also important," said Patrick Yiu, managing director at CASH Asset Management.
TIGHTENING FEARS WEIGH IN CHINA
Traders said liquidity conditions may not tighten in the coming couple of weeks because hundreds of billions of yuan worth of PBOC bills were set to mature and foreign capital appeared to be continuing to flow into China on a large scale.
"Investors have little intention to enter the market for now as the tightening environment has not changed," said Xu Yinhui, a senior analyst at Haitong Securities in Shanghai. "Under this expectation of tighter policy, the index may hover around recent levels because of investor caution."
Agricultural Bank of China Ltd , the country's No.3 lender by assets, fell 0.4 percent, even though it reported a forecast-beating 83 percent rise in quarterly profit on Tuesday, with analysts saying that banks had already advanced.
Shanghai Pudong Development Bank Co Ltd was up 1 percent after the mid-sized lender said it planned to issue up to 50 billion yuan ($7.6 billion) in subordinate debt from by 2013. [ID:nL3E7ET3KA]
It also posted a 45 percent rise in 2010 net profit.
The index was also weighed down by profit-taking in pharmaceutical companies that recently outperformed the market in speculative trade
Ningxia Dayuan Chemical Co Ltd , the biggest loser on the Shanghai market, dropped 6.8 percent, while Merro Pharmaceutical Co Ltd , the second-biggest loser, fell 6.6 percent. (Editing by Chris Lewis)
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