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H-shares suffer worst weekly drop of 2017 on China policy concerns

HONG KONG (Nikkei Markets) -- Chinese companies in Hong Kong on Friday capped this year's worst weekly loss on worries about tighter financial regulations and soft economic data.

The Hang Seng China Enterprises Index shed 1.6%, taking its weekly loss to 2.9%. Thirty-eight of the 40 stocks in the gauge ended lower Friday, with energy producers pacing declines. PetroChina and China Petroleum & Chemical (Sinopec) each fell at least 2.4% as U.S. crude traded near five-month lows. The benchmark Hang Seng Index lost 0.6% during the holiday-shortened week, with most of its losses recorded Friday. Hong Kong financial markets were closed for holidays on Monday and Wednesday.

China's economy is showing signs of fatigue after months of stabilization, with manufacturing and service sector activity slowing in April, according to figures released this week. The data has weighed on sentiment while authorities have stepped up efforts to discourage speculation and contain leverage to rein in financial risks. Overnight lending rates between banks soared to two-year highs this week and one-year government bond yields have climbed to levels last seen in December 2014. Mainland commodity markets, particularly iron-ore futures, have reportedly slumped this week.

"While tight liquidity will likely continue to hurt equity and commodity markets, the more important question is how much effect the recent policy changes will have on broader economic activity," said Steven Leung, executive director of institutional sales at UOB Kay Hian. Leung said the Hang Seng Index "will continue to be weighed down by China companies, but heavyweights like HSBC and AIA will perform well and provide support on the downside."

HSBC Holdings advanced 3.5% this week, the most since December, buoyed by March quarter earnings that came in ahead of expectations. It rose 0.2% on Friday.

AIA Group added 1.4% this week, building on the previous week's gain of more than 8% after it reported a surge in new business. The insurer however slipped 0.7% Friday.

Belle International Holdings jumped 15% this week after the shoe retailer received a $6.8 billion offer to take it private. The stock closed unchanged at HK$6.06 on Friday

Hang Lung Properties fell 5.8% and New Word Development dropped 2.5% this week as markets priced in increased odds that the U.S. Federal Reserve will raise rates next month.

CRRC fell 1.7% on Friday, in line with losses for mainland companies in Hong Kong. The railcar maker is among 10 state-run companies chosen by China for mixed ownership reforms, Bloomberg reported. CRRC plans to invite Fosun International and SDIC Fund Management as investors, the report said. Fosun International also shed 1.7%.

The Bloomberg report also said that Air China and China Southern Airlines were proposing consolidation of their cargo businesses. Air China fell 0.2% on Friday and China Southern dropped 0.4%.

Fullshare Holdings jumped 15% on Friday to HK$3.40 and ranked among the day's most-traded stocks on the exchange. The gain built on an 18% rally in the stock Thursday, when shares resumed trading after the company dismissed claims by short-seller Glaucus Research that Fullshare had manipulated its stock price. Zall Group said it acquired 15 million shares in Fullshare at an average price of HK$2.94 on Thursday, raising its stake to 3.53%.

Among other notable movers on Friday, casino operator SJM Holdings slumped 4.5% following a 5.3% decline in its gaming revenue for the quarter ended March 31. Other gambling shares also retreated, with Galaxy Entertainment Group sliding 4.6% and Sands China dropping 1%.

E.Bon Holdings plunged 16% after warning that its profit for the year ended March 31 likely declined by at least 40%. MMG tumbled 9.1% after saying its chief operating officer had resigned.

The Shanghai Composite fell 0.8%, completing its fourth consecutive weekly loss. The Nikkei Asia300 Index was down 0.7% on Friday.

--Nimesh Vora and V. Phani Kumar

--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300 companies.

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