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HONG KONG/SHANGHAI (Reuters) - China's key stock index was lower by midday Tuesday, with weakness in financials and profit-taking in airlines offsetting outperforming rare earth and agricultural issues.
The Shanghai Composite Index fell to 2,620.75, with the 60-day moving average at 2,560 providing strong support ahead of the week-long National Day holiday starting on Friday.
Aluminum Corp of China Ltd (Chalco) jumped by its 10 percent daily limit after its parent said it would take a majority stake in Jiangxi Rare Metals Tungsten Group.
"Rare earths and non-ferrous metals are the hot sectors today. These sectors have a very supportive background," said Zhang Yanbing, analyst at Zheshang Securities in Shanghai.
China produces more than 90 percent of the global supply of rare earths - minerals used in a range of consumer products ranging from rechargeable batteries to fiber optics - with global demand forecast to grow rapidly as demand for green products rises.
China recently announced a range of measures to support the growth of its rare earth mining industry and also cracked down on illegal mining.
Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co Ltd rose 5.4 percent. Eastern Gold Jade Co Ltd rose by its 10 percent limit, while Rising Nonferrous Metals Share Co Ltd gained 9.5 percent.
Airlines were among the top losers, retreating after recent strong gains on the back of a stronger yuan. A strong yuan is seen as beneficial for Chinese airlines who buy aircraft in foreign currency.
China Eastern Airlines Corp Ltd slid 4.3 percent, while Air China Ltd, also among the biggest losers, fell 3.5 percent.
Ningbo Port Co Ltd fell below its initial public offering price on its first day of trade after raising $1.1 billion in the country's sixth-biggest IPO this year.
Hong Kong stocks pulled back from an eight-month high after a weaker close on Wall Street prompted profit-taking in sectors that had outperformed the broader market this month such as local property.
The benchmark Hang Seng Index, which is still trading well into technically overbought territory, was down 0.12 percent at 22,314.14 by the midday trading break.
A flurry of equity-financing activity in Hong Kong, including share and convertible bond placements, and a spate of initial public offerings could damp further gains, said analysts at Julius Baer in a note.
China Unicom shares fell 3.6 percent after the mobile provider said it had sold $1.8 billion in convertible bonds, a move likely to dilute value for existing shareholders.
"Investors are probably concerned about why Unicom is issuing convertible bonds rather than straightforward debt," said Paul Wuh, an analyst at Samsung Securities in Hong Kong.
Ruinian International Ltd slumped 8.2 percent after the company said shareholders including Turrence Ltd and Templeton Private Equity were selling 100 million shares at a discount to the Monday closing price.
Adding to fears of excessive new share supply into the market, five initial public offerings initiated their retail tranches and AIA Group, the Asian unit of American International Group Inc, starting pre-marketing for its IPO.
Helping to limit the downside for the broader market, Aluminum Corp of China Ltd (Chalco) surged 5.7 percent to a near five-month high after its parent's investment in rare earth companies.