* HSI recovers to rise 0.5 pct, but volumes very low
* Shanghai Comp down 1.2 pct, CSI300 off 1.4 pct
* Li Ning shares bounce 7.3 pct after management changes
* Turnover in Hong Kong turnover was 2nd lowest this year
(Updates to close)
By Vikram Subhedar
HONG KONG, July 5 (Reuters) - Hong Kong shares reached their
highest close since May 15 on Thursday but gains came in this
year's second-lowest turnover, suggesting investors remained
worried about the Chinese economy and cautious ahead of a
European Central Bank meeting.
China's domestic benchmarks ended lower - underperforming
the rest of Asia - with the Shanghai Composite down 1.2
percent and large-cap focused CSI300 off 1.4 percent.
Both are now less than half a percentage point from a 2012 low.
The Hang Seng index recovered from early losses to
end the day up 0.5 percent, which traders said was largely due
to short-covering in the afternoon. An index of top Hong
Kong-listed Chinese firms rose 0.2 percent.
On the mainland markets, lower commodity prices hit shares
in the energy and materials sectors while sluggish market
performance weighed on shares of top retail brokerages Citic
Securities and Haitong Securities.
"Most investors had hoped the domestic economy would bottom
out in June but data, such as PMI, suggest that may not be the
case," said Chen Yi, analyst at Xiangcai Securities in Shanghai,
referring to the purchasing managers' index.
"There are worries over next week's economic data."
China next week will announce the second quarter growth
rate, which analysts expect to show the economy to have cooled
for a sixth successive period.
Citic shares in Shanghai fell 2.7 percent making them the
second-biggest drag on the benchmarks behind Sinopec
, which dropped 2.4 percent. Citic shares in Hong
Kong fell 1.4 percent on worries that the weak market
would curb appetites among China's retail investors.
Trading activity was particularly subdued in Hong Kong where
turnover fell to its lowest level since 2012's first day of
trading as investors awaited central bank policy decisions from
Europe later on Thursday and U.S. payrolls data on Friday.
The ECB is widely expected to cut its main interest rate to
a record low and may also restart its purchase of euro zone
bonds to push down borrowing costs and inject more funds into
the financial system.
With volume so light, a significant short squeeze in
blue-chip index stocks was forcing the market higher, said a
trader at an U.S. brokerage in Hong Kong, adding that the U.S.
holiday on Wednesday had resulted in fewer overnight orders.
Local investors were seen parking money in defensive
heavyweights such as utilities, telecoms and Hong Kong
large-caps that were among the few stocks that saw gains on
relatively healthy volumes.
China Unicom, whose shares have lagged those of
larger rival China Mobile this year, rose 2.7 percent.
Cheung Kong Holdings gained 1.4 percent while power
utility CLP Holdings closed up 1.3 percent.
LI NING JUMPS
Chinese sportswear brand Li Ning, which was near a
seven-year low last Friday, rose 7.3 percent. The company, which
just made senior management changes, bucked the day's trend of
weaker volume, with trading at more than three times its daily
average over 30 days.
The company, which has struggled with weak sales and high
marketing costs, saw shares hit a near 7-year low last month and
over June significantly lagged the Hang Seng index.
Short-sellers piled into the stock with nearly 60 percent of
the shares available to be lent out on loan as of late June,
according to Markit Securities Finance. Traders said some
bearish bets were covered this, week helping the stock rise
almost 16 percent since last Friday.
Analysts remain bearish on the outlook for Li Ning with 13
of them slashing their 2012 earnings expectations by an average
39.7 percent over the past month, according to Thomson Reuters
Chinese sportswear brands have lost out to international
competition from Nike and Adidas, which have
gained market share in China.
Shares of PC maker Lenovo recovered slightly from
losses over the past two days and ended up 0.7 percent following
reports in Japanese media that it was planning to develop tablet
computers with Japan's NEC Corp.
(Additional reporting by Yixin Chen in Shanghai; Editng by