* HSI -0.1 pct, H-shares -0.4 pct, CSI300 -0.9 pct
* Evergrande tumbles after $561 million new share issue
* China Life Insurance hit by Credit Suisse downgrade
* Short selling builds up for China, HK ETFs
By Clement Tan
HONG KONG, Jan 17 (Reuters) - Mainland Chinese shares retreated further on Thursday from a 7-1/2-month high struck two days earlier, weighing on Hong Kong markets, with growth-sensitive counters leading the slide ahead of a slew of major Chinese economic data due on Friday.
The Hang Seng Index closed down 0.1 percent at 23,339.8 after earlier testing chart resistance at 19-1/2 month highs at about 23,500. This level has stymied index gains for more than two weeks.
The China Enterprises Index of the top Chinese listings in Hong Kong fell 0.4 percent. The Shanghai Composite Index lost 1.1 percent, while the CSI300 of the top Shanghai and Shenzhen A-shares shed 0.9 percent.
Shanghai volume on Thursday was the weakest since Jan. 7, while turnover in Hong Kong only crawled to the highest in a week because of a $560 million new share placement for Chinese developer Evergrande.
Losses over the last two days have about halved gains made on onshore China indexes earlier this week.
Hong Kong-listed exchange-traded funds (ETFs) tracking China listings accounted for the top three most shorted, suggesting investors were betting on more index losses. Short selling accounted for 55 percent of China Asset Management's CSI300 RQFII ETF turnover on Thursday.
"I think people are still just taking profit from the out-sized jump in the A-share market earlier this week," said Hong Hao, chief equity strategist at Bank of Communication International Securities.
"We are early in this rotation into cyclicals at the start of a new economic cycle in China, so some are still operating as in a bear market, selling into strength and clocking profits by rotating swiftly between sectors," Hong added.
Analysts expect Beijing to post a rebound to 7.8 percent growth in the fourth quarter of 2012 on Friday, its first quarterly rise in eight. December data for housing prices, urban investment, industrial output and retail sales are also expected.
On Thursday, China Life Insurance tumbled 2.4 percent in Hong Kong and 3 percent in Shanghai despite posting a 40 percent year on year increase in premium income in December, lifting growth to 1 percent for 2012.
Hong Kong shares of China's largest insurer were hurt by a downgrade from "neutral" to "underweight" by Credit Suisse analysts on Thursday, who said its high valuation relative to sector peers is not justified given an unfavorable 2013 outlook.
Thursday's losses almost pared gains on the week for China Life's Hong Kong listing. It is still up more than 3 percent in 2013 following a 32 percent surge last year. The Hang Seng Index is up 2.7 percent in 2013 after jumping 22.9 percent in 2012.
According to Thomson Reuters StarMine, China Life is currently trading at a 0.7 percent premium to its historical median forward 12-month earnings multiple. Ping An Insurance , its biggest rival, is currently trading in Hong Kong at a 32 percent discount.
In a sign the upcoming earnings season, that picks up after the Chinese New Year in February, could stall the bright start to the year, Brightoil Petroleum slumped 11.2 percent to its lowest since Nov. 30 after it warned of a loss in second-half earnings.
HONG KONG PROPERTY CLIMBS, CHINA's SLIPS
Evergrande tumbled 7.1 percent to HK$4.32, slightly below the HK$4.35 level at which the Chinese developer priced one billion new shares on Thursday, which was a 6.5 percent discount to its Wednesday's close.
Thursday's losses took Evergrande to its lowest close since Dec. 31, hurting most of its Chinese property sector rivals listed in Hong Kong. China Resources Land shed 1.7 percent to its lowest close this year.
Hong Kong property counters climbed after no harsh property curbs were included in maiden policy speech by the territory's new chief executive on Wednesday, which instead announced an increase in land supply.
Sun Hung Kai Properties gained 0.8 percent to its highest close since April 2011. Henderson Land gained 0.6 percent, stretching gains in 2013 to more than 8 percent after spiking 42 percent in 2012.
BNP Paribas said the Hong Kong government's discussion with developers to accelerate pre-sale of residential units could moderate property price growth and lower the risk of further tightening measures, which would be positive for developers' launches and for the sector.