HK stocks fall to near 2-yr low on Lehman collapse

* Stocks fall across the board after Lehman bankruptcy

* Hang Seng Index tumbles to near two-year lows

* Banks and energy plays mauled

HONG KONG, Sept 16 - Hong Kong's shares tumbled 5.9 percent on Tuesday to a near two-year low, tracking weak regional markets after Lehman Brothers filed for bankruptcy and U.S. stocks fell to lows not seen since September 2001.

Financial plays tumbled on fears for the U.S. financial system after Lehman failed to find a rescuer, insurer AIG struggled for survival, and Merrill Lynch was snapped up by Bank of America, all of which unleashed a wave of global stock selling on Monday, when Hong Kong markets were closed for a holiday.

Analysts said fears over the U.S. financial system would carry on plaguing the market and drag it yet lower as long as investors remain unsure whether U.S. markets have hit bottom.

"In terms of valuations, this market is already inexpensive, but there isn't enough confidence to buy," said Y.K. Chan, a strategist at Phillip Securities.

"We've seen some bargain hunting, but we are still waiting to see whether these financial giants can be rescued. We have to see some stablizing signals from the U.S."

The benchmark Hang Seng Index ended the morning session down 1,142.41 points at 18,210.49, dragged down by steep losses in finance, energy, and telecom plays. Hong Kong markets were closed for a public holiday on Monday.

The 5.9 percent slide would be the biggest one-day fall in percentage terms since January this year if held to the close.

The Chinese Enterprises Index of mainland companies listed in Hong Kong was down 7.2 percent at 9,255.67, less than half of last year's high of 20,609.10 Turnover climbed to HK$45.4 billion, compared to Friday's roughly HK$32.8 billion.

On Tuesday, Joseph Yam, chief executive of the Hong Kong Monetary Authority (HKMA), said Lehman Brothers' bankruptcy filing will have a negative impact on Hong Kong markets but the city's central bank will provide liquidity if needed.

"Although the U.S. stock market had a sharp fall (yesterday) (there was) no panic selling," Yam told reporters.

Bank of China lost 7.2 percent, and Bank of Communications fell 9.7 percent.

Market heavyweight HSBC fell 4 percent--costing the market 128.09 points. Bank of China (Hong Kong) lost 8.9 percent, and ICBC dropped 7.7 percent.

China's central bank acted decisively on Monday to prop up the country's slowing economy by cutting the cost of bank loans for the first time since February 2002.

The 0.27 percentage point cut in benchmark lending rates lowers the cost of one-year bank loans to 7.20 percent from Tuesday, the PBOC said on its website, www.pbc.gov.cn.

Some fund managers speculated that other Asian banks could follow China in cutting interest rates assuming they did not have major issues relating to moves in their currencies.

"You might see similar follow through action by (central) banks (elsewhere in Asia) who until last month were looking to fight inflation, and now may change their stance to look at more supportive monetary stance to help growth," said Binay Chandgothia, chief investment officer with the Hong Kong operation of Principal Global Investors.

The U.S. Federal Reserve holds a one day interest rate meeting on Tuesday amid some speculation of a rate cut.

China coal giant China Shenhua shed nearly 13 percent, as brokers said some international funds were selling energy and resources stocks on softening oil prices.

China Coal Energy fell 10.9 percent, and China's top offshore oil company CNOOC shed 10.3 percent.

Oil prices fell nearly $4 to a seven-month low approaching $90 a barrel on Tuesday as the Lehman woes ignited fears that the credit crisis may weaken the global economy and further depress energy demand.