Hong Kong shares little changed, turnover stays strong

* Energy stocks outperform after crude price rally

* Li & Fung slides on capital raising plan

* Improved turnover props up HKEx shares (Updates to midday)

HONG KONG, May 5 - Hong Kong shares held steady on Tuesday after a three-day rally but funds continued to wash into the market amid signs of stabilisation in the global economy.

Hong Kong Exchanges & Clearing outperformed with a 4.3 percent jump on improving turnover on the exchange in recent weeks as foreign investors bet on a quick turnaround in China's economy. Trading fees make up nearly a fifth of the exchange operator's revenue.

The benchmark Hang Seng Index was 0.1 percent or 20.75 points higher at 16,401.80 at midday, after hitting a six-and-half-month high of 16,580.54 earlier in the morning session.

"The sentiment in the market is quite favourable with more confidence in an economic recovery. But more importantly there is a lot of liquidity, making sure there is further upside to this market," said Conita Hung, head of equity markets with Delta Asia Securities.

The Hong Kong Monetary Authority has been injecting money into the system as heavy offshore flows into the stock market lured in by IPOs, such as last week's public issue by China Zhongwang Holdings, have been forcing Hong Kong's pegged currency to the top end of its narrow band against the U.S. dollar.

Turnover hit HK$48.4 billion, compared with midday Monday's HK$41.3 billion.

But the main index was speckled with more red tickers than black as some investors gave into the temptation of profit taking, particularly on mainland financial and property stocks, while others turned cautious ahead of U.S. bank stress test results later this week.

About 10 of the 19 largest banks being stress-tested will be instructed by regulators to raise more capital, a source familiar with official talks told Reuters on Tuesday.

"The results of the Federal Reserve's stress tests on the 19 U.S. banks may be met with some disagreement by the participants, cooling investment sentiment," said Taifook analyst Marco Mak advising investors to sell into strength at 16,500 points.

The China Enterprises Index of top mainland companies had dropped 0.9 percent to 9,555.44.

Offshore oil specialist CNOOC climbed 2.4 percent after crude prices hit their highest level so far this year on Monday, as investors predicted a bottoming out of the global economic slump would pave the way for a recovery in ailing e 536870913 1852142183

Asia's top oil & gas producer PetroChina added 0.7 percent even as oil prices eased slightly in Asian trade onTuesday.

SHARE PLACEMENTS ABOUND

Consumer goods exporter Li & Fung Ltd dropped 7.9 percent after saying it would sell $350 million in shares to its controlling shareholder at a discount to fund future business development and acquisitions.

"The placement came as a surprise to the market as the company raised $500 million in September 2008," said UBS analyst Spencer Leung, while downgrading the stock to a sell rating from neutral following its recent sharp rally.

Li & Fung gained 22 percent in three sessions to Monday after the company said it may sign four outsourcing deals this year as recession-hit U.S. retailers look to cut costs. The stock was at HK$22.10, slightly lower than its share sale price of HK$22.55.

China High Speed Transmission dropped 5 percent to HK$13.78 after Morgan Stanley sold 65 million shares in the company to raise close to $111 million.

The shares were sold at HK$$13.30, an 8.3 percent discount to the pre-deal closing price on Monday, market sources said.

Zhejiang Expressway shed 8.5 percent after reporting a 25 percent drop in first-quarter earnings on Monday to 358.99 million yuan ($52.6 million) due to traffic diversions caused by the opening up of another expressway and a bay bridge.

Analysts expect toll revenue to improve in the quarter ahead as the diversions stabilise in stages.