Hong Kong shares close 0.79% down

Hong Kong stocks have fallen 0.79 per cent in truncated trade as the debt crisis in Europe trumped data showing Chinese manufacturing activity had hit a five-month high in July.

The benchmark Hang Seng Index closed 150.27 points lower at 18,903.20 on Tuesday on turnover of $HK29.28 billion ($A3.70 billion).

The market opened for only the afternoon session because of a severe typhoon.

Banking giant HSBC said on Tuesday that preliminary figures showed China's manufacturing activity contracted at its slowest pace in five months in July.

The bank's Purchasing Managers Index hit 49.5 in July, well up from the 48.2 recorded in June, which HSBC said indicated government measures to boost economic growth, including interest rate cuts, were working.

A PMI reading above 50 indicates expansion, while a reading below 50 points indicates contraction, and while the data was negative it provided some hope that the country's manufacturing sector was heading in the right direction.

However, the focus was on the eurozone's debt troubles and particularly Spain, where borrowing costs for its benchmark 10-year bonds have reached levels well above the seven per cent seen as unsustainable for governments.

There are fears Madrid will have to follow Greece, Ireland and Portugal in asking for help.

Adding to the European gloom was a decision by Moody's to cut the outlook on Germany's credit rating, putting at risk the AAA status of the biggest and most important of the eurozone economies.

China Mobile rose 0.87 per cent to $HK86.70, commodities giant CNOOC fell 4.02 per cent to $HK14.82 and HSBC shed 1.66 per cent to $HK62.05.

Chinese shares closed up 0.24 per cent. The Shanghai Composite Index added 5.19 points to 2,146.59 on turnover of 46.7 billion yuan ($A7.14 billion).

"Sentiment remains weak and expectations for a bank reserve ratio cut may already be priced in," Zhang Gang, an analyst with Central China Securities, told Dow Jones Newswires.

Investors were awaiting other economic data due to be released in early August for signs to confirm a recovery in the domestic economy, analysts said.

Property stocks rose on bargain hunting after losses in previous sessions. Gemdale gained 2.72 per cent to 6.04 yuan, Poly Real Estate rose 2.14 per cent to 11.44 yuan and China Enterprise closed up 1.60 per cent to 4.45 yuan.

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