HSBC drops 3.6 pct, drags HSI off high

HONG KONG, Jan 14 (Reuters) - Index heavyweight HSBC Holdings (0005.HK) slid 3.6 percent after Morgan Stanley slashed its target price on the stock by 31 percent and warned of lower earnings and recapitalisation pressure at Europe's largest bank.

The stock fell to HK$70.35, its lowest level since after the September 11, 2001 attacks on the United States, following a Morgan Stanley report that cut its target price to HK$52.

The U.S. investment bank cut its profit estimate for the UK-based lender by 17 percent for 2008 and 39 percent for 2009 and said HSBC may have to raise $20 billion to $30 billion to shore up its capital.

Its local arm Hang Seng Bank (0011.HK) also followed suit with a 2.4 percent drop on Wednesday.

The sharp slide in HSBC shares dragged the benchmark Hang Seng Index .HSI off its earlier highs. By 0719 GMT the index had trimmed gains to 1.1 percent at 13,813.96 after rising to 14,019.03 earlier. (Reporting by Parvathy Ullatil; Editing by Jonathan Hopfner) (parvathy.ullatil@thomsonreuters.com; +852 2843-6415))