* HSI -0.4 pct, H-shares -0.9 pct, CSI300 -1.4 pct
* A-shares hit by pre-holiday profit-taking
* Shanghai free trade zone stocks lead A-share tumble
* New World Development sinks ahead of earnings
By Clement Tan
HONG KONG, Sept 26 (Reuters) - China shares sank to two-week lows early Thursday, weighing on Hong Kong, as investors started taking profit on recent outperformers ahead of the quarter's end and a week-long holiday that begins on Tuesday.
Shares of global supply chain manager Li & Fung tumbled 4.1 percent, tracking losses for Wal-Mart Stores Inc after Bloomberg reported the U.S. retailer is cutting orders this and next quarter. Wal-Mart denied the report and Li & Fung said there have been no cancellation of Wal-Mart orders.
At midday, the Hang Seng Index was down 0.4 percent at 23,108.3 points. It has now surrendered all the gains it made last Thursday after the U.S. Federal Reserve stunned markets by not cutting its asset-purchasing programme.
The China Enterprises Index of the top Chinese listings in Hong Kong fell 0.9 percent. The CSI300 of the leading Shanghai and Shenzhen listings dropped 1.4 percent, while the Shanghai Composite Index sank 1.5 percent.
All four indexes are now at their lowest since mid-September.
"Shanghai free-trade zone 'concept' stocks are the biggest losers today, they have rallied strongly over the last few weeks and most are now technically overbought," said Cao Xuefeng, Huaxi Securities' Chengdu-based head of research.
"Some quarter-end profit-taking is starting to happen, and perhaps aggravated by the week-long National Day holiday at the start of October. The free trade zone is also launching this Sunday," Cao added.
Shanghai International Port dived 9.4 percent after closing on Wednesday at its highest since August 2009. Its Shanghai shares are still up almost 150 percent from an Aug. 22 trough.
Key drivers have been rising global freight rates and official approval, announced on Aug. 23, for a Shanghai free-trade zone expected to be a testbed for financial liberalisation in the mainland.
Shanghai Oriental Pearl Group shed 8.9 percent. On Wednesday, it had closed at its highest in nearly three years and its highest relative strength index (RSI) value since May 2006.
China Merchants Bank fell 0.8 percent to HK$14.64 after the country's sixth-largest lender raised HK$7.95 billion ($1.03 billion) from the sale of 680.4 million H-shares, priced at $11.68, a 19 percent discount to the pre-deal spot price.
The bank earlier this month raised 27.52 billion yuan ($4.49bn) from the sale of 2.96 billion A-shares on the same basis. Its Shanghai listing was down 1.6 percent on the day.
Hong Kong property conglomerate New World Development sank 1.7 percent ahead of its full-year earnings due at the midday trading break. Three of 12 analysts have upgraded their earnings estimates by an average of 30.1 percent in the past month, according to Thomson Reuters StarMine.
Now down 1.7 percent on the year, New World Development is trading at 10 times 12-month forward earnings, a 21 percent discount to its historical median, according to StarMine.
There were gains, however, for Shanghai-listed Yunnan Yutianhua, surging 10 percent.
The official Shanghai Securities News reported on Thursday the company will swap 4.76 billion yuan ($777.78 million) worth of loss-making assets with 540 million shares in itself owned by its parent, and then cancel them, in the first such move by a China-listed company.
Markets in the mainland will shut Oct. 1 to 7 for the National Day holiday, Hong Kong will be shut on Tuesday.