(Updates to midday)
* HSI up 0.5 percent at midday, Shanghai Comp little changed
* Turnover light as G7 emergency talks prompt some short-covering
* HK property offers good risk-reward: Bofa Merrill Lynch
By Vikram Subhedar
HONG KONG, June 5 (Reuters) - Battered Hong Kong shares rose slightly on Tuesday, partly on short-covering ahead of emergency G7 talks on the euro zone debt crisis, although investors remained reluctant to take on fresh positions because of the increasingly gloomy global outlook.
The Hang Seng index was up 0.8 percent at 18,337.5 after ending the midday trading break up 0.5 percent with beaten down financials supporting gains although turnover remained light. The China Enterprises index rose 0.7 percent.
Mainland markets, which have outperformed Hong Kong and other regional stock indices since last month's weakness, were little changed. The Shanghai Composite was up 0.3 percent while the large-cap focused CSI300 rose 0.2 percent.
"The brighter start to the day despite the effectively flat close overnight in U.S. markets was largely down to G7 but unless there's some sort of firm commitment this has to be seen as a short-term bounce," said a Hong Kong-based trader at an Asian brokerage.
HSBC Holdings was the top boost for the benchmark up 0.8 percent and recovering from a 4-1/2 month low it hit in the previous session.
China's biggest banks were also stronger with Bank of China the top performer among benchmark constituents with a 1.7 percent rise on the day.
Bank of China shares have outperformed peers and still up 4.8 percent on the year compared with the 0.4 percent drop for financial sub-index.
The Hong Kong property was broadly stronger after Bank of American Merrill Lynch said in a note to clients rewards outweigh the risks of buying into the sector at current levels.
The brokerage now projects Hong Kong residential prices to rise 5 to 10 percent in 2012 versus a prior forecast that called for a 10 percent decline largely due to the resilient performance of homes prices in the year-to-date.
Analysts at BofA Merrill Lynch said the valuation gap between physical property prices and stocks was at an all-time high and the markets were pricing in a 30 percent drop in physical prices.
Cheung Kong Holdings and Henderson Land were among its top picks. The stocks were up a percent and 1.3 percent respectively on the day.
Shares of Wharf Holdings, which owns commercial properties throughout Hong Kong, jumped 2.7 percent after the company agreed with the Hong Kong government on terms to renew a land lease.
Bucking the trend, cyclical stocks such as coal producers and shipping stocks remained weak as the outlook on global growth remains grim.
China Shenhua was a percent lower while China Coal both dropped 0.6 percent. (Reporting by Vikram Subhedar; Editing by Ramya Venugopal)