June 14, 2017 / 5:12 AM / 2 months ago

China stocks fall on Anbang tumult, weak investment data; Hong Kong eyes Fed

* SSEC -0.6 pct, CSI300 -1.0 pct, HSI -0.3 pct

* Anbang-invested stocks drop on news chairman probed

* Weak China investment data reinforces slowdown concerns

SHANGHAI, June 14 (Reuters) - China stocks fell early Wednesday, led by blue-chips, as sentiment was soured by a media report alleging a probe of the head of financial conglomerate Anbang Insurance Group, plus weak May investment data deepening worries of economic deceleration.

Hong Kong shares also dropped, as investors braced for a likely U.S. rate hike later in the day, and awaited clarity on the Federal Reserve's future policy. Some investors also think a U.S. hike will prompt China to increase its interest rates.

China's blue-chip CSI300 index fell 1 percent, to 3,545.44 points by the lunch break, while the Shanghai Composite Index lost 0.6 percent, to 3,135.32 points.

Investors dumped stocks - many big-caps - that are partly-owned by Anbang, after the acquisitive company said late on Tuesday its chairman Wu Xiaohui was no longer able to fulfil his duties. Hours earlier, Chinese magazine Caijing reported that Wu had been taken away for investigation.

Anbang-invested shares - including Financial Street Holdings , China Vanke, China Merchants Shekou , Gemdale and China State Construction Engineering - all dropped sharply.

Confidence was further dented by China's tepid investment data for May, reinforcing views that the world's second-largest economy will soon start to lose some momentum.

"Given the recent data, we are almost certain to see a continued slowdown in 2H17 and 2018," wrote Larry Hu, analyst at Macquarie Capital Ltd.

"Reflation has become disinflation. Inventory stocking has turned into destocking. Property is entering a downcycle."

The worrying combination of tighter short-term liquidity, and pessimism toward longer-term growth is reflected in China's inverted yield curve, with the benchmark yield on one-year Chinese government bonds rising above 10-year yield recently.

Most sectors fell, but small caps fared better.

HONG KONG

In Hong Kong, the Hang Seng index dropped 0.3 percent, to 25,786.00 points, while the Hong Kong China Enterprises Index lost 0.3 percent, to 10,496.66.

All eyes were on the U.S. central bank, which is scheduled to release its rate decision at 1800 GMT Wednesday with a news conference to follow from Chair Janet Yellen.

Reporting by Samuel Shen and John Ruwitch; Editing by Richard Borsuk

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