China shares suffered their biggest daily loss in more than three weeks on Tuesday after hopes for a cut soon in bank reserve requirements were doused, with the Shanghai benchmark breaking below key chart support, pointing to further weakness ahead. The mainland's slide spread to Hong Kong markets, reversing early gains. The China Enterprises Index of the top mainland listings in the territory lost 0.6 percent. The broader Hang Seng Index declined 0.1 percent.
The Shanghai Composite Index finished down 1.7 percent at 2,291.9 points, breaking below chart support at 2,300, a level that had capped gains for most of the past month. Turnover in Hong Kong was at its lowest since January 30, while A-share turnover in Shanghai declined for the second-straight session.
--- Turnover declines on both bourses
"The decline today is largely due to dashed hopes of an imminent cut in reserve requirements, which was a large part of this start-of-the-year rally and spooked retail investors," said Guo Yanling, an analyst with the Shanghai Securities brokerage firm.
In Hong Kong, Chinese insurers, whose shares are seen proxy plays on mainland markets because of their extensive investments, were weak. China Life Insurance was the top drag on the Hang Seng Index, losing 2.2 percent. Strength in defensive names pointed to caution, with the Hang Seng utilities sub-index a relative outperformer on, up 0.7 percent. China Unicom was among the Hang Seng Index's top boost, up 3.2 percent.
Gains in HSBC Holdings Plc, Europe's largest bank and the largest Hang Seng Index component stock, helped limit losses on the benchmark. It rose 0.7 percent to close at its highest since October 31. Gains accelerated after European stock futures opened higher in mid-afternoon.
The Hang Seng Index had opened higher on Tuesday, but retreated from intraday gains with losses limited at around 20,564, a level that has supported the benchmark for the last three sessions. It is seen capped on the upside by its 250-day moving average, currently at 21,043.2 as investors watch the outcome of Greek debt-restructuring talks. If there's a positive ending, the HSI could break above 21,017, the bottom of a 708-point gap that opened between August 4 and 5.
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