The benchmark Hang Seng Index in Hong Kong slipped 1.35 percent, or 292.12 points, to 21,387.96 on turnover of HK$68.83 billion ($8.82 billion).
China's official purchasing managers index (PMI) of manufacturing activity hit 51.0 in February from 50.5 in January, the China Federation of Logistics and Purchasing said, the third straight month of expansion.
A reading above 50 indicates the sector is growing.
The news eased concerns that the Chinese economy was heading for a sharp slowdown, or "hard landing".
However, the news was overshadowed by US Federal Reserve Chairman Ben Bernanke telling legislators that he was still cautious over the US economic recovery, saying it remains "uneven and modest".
Adding to traders' downbeat mood was Bernanke's lack of hint towards another round of quantitative easing, or bond-buying stimulus, as some had expected.
In Hong Kong, Chinese developer Country Garden tumbled 8.8 percent to HK$3.20 after it tapped the share market for fresh capital, leading to worries over a share glut. The move raised fears that its peers may follow suit.
Evergrande fell 8.1 percent to HK$4.53 and blue-chip China Overseas Land was off 5.5 percent at HK$15.36.
Chinese shares fell 0.10 percent. The Shanghai Composite Index, which covers A and B shares, ended down 2.38 points at 2,426.11 on turnover of 71.1 billion yuan ($11.3 billion).
"We saw a mixed reaction to the PMI data, with some viewing the moderate uptick as progress in the domestic economy, while others expecting further pro-growth measures," Zhang Qi, an analyst at Haitong Securities, told AFP.
Blue-chip stocks, including oil companies and banks, fell.
PetroChina lost 0.76 percent to 10.44 yuan and Sinopec Group dropped 0.66 percent to 7.57 yuan.
The Industrial and Commercial Bank of China shed 0.45 percent to 4.41 yuan and China Construction Bank slid 0.41 percent to 4.86 yuan.