Shares in Hong Kong closed lower Monday, as China Mobile (CHL) and Alibaba.com (ALBCF) sank on stock-specific news, and investors seized the day to take profits after the Hang Seng hit a three and a half month high last week.

The Hang Seng finished 57 points, or 0.2% lower, at 26,183.95, but mainland-listed A shares rose after local news reports that CITIC Securities and Haitong Securities will be permitted to offer margin financing and short-selling facilities to domestic investors. The Shanghai Composite Index gained 68 points, or 1.8%, to 3761.01.

Japanese markets were closed for a holiday, and reopen Thursday.

"The Hong Kong market has recovered about 50% since its October selloff. We are in a junction now in terms of market direction, and you have to decide whether to go left or right," says Winson Fong, who runs $500 million for Societe Generale Asset Management in Hong Kong. "I'm not particularly bearish at this point. The only concern is how much downward revision of earnings comes through. When you see rising costs, profit margins get squeezed."

An announcement that more Chinese mainland funds will be allowed to invest in Hong Kong failed to give a boost to momentum shares in Hong Kong. Dealers cited an absence of activity from long-only Japanese funds due to the national holiday there. Market turnover was moderately strong but slightly weaker than Friday, at HK$74 billion ($9.5 billion).

China Watch: India vs. China

Alibaba.com tumbled 5.9%, to HK$15.24, after major shareholder Yahoo! ( YHOO)failed to reach a sale agreement with Microsoft ( MSFT) Saturday. Yahoo! owns 39% of Alibaba.com, which is China's largest e-commerce firm by market cap.

Dominating speculation on trading floors was talk that China Unicom's ( CHU) chairman Chang Xiaobing will take the helm at rival China Mobile later this month as part of a plan to restructure the domestic telecom industry.

Shares in China Mobile sank 1.3%, to HK$134.40. Any plans to reshuffle the telco industry are widely viewed as potentially compromising China Mobile's position as market leader. China Unicom rose 0.8%, to HK$17.12. Dealers said they were short-selling large chunks of China Unicom, while analysts were broadly dismissive of the impact of management changes.

"There has been no major changes to the operational performance on a relative basis among the four Chinese telcos since the last round of reshuffling in 2004," wrote Marvin Lo, an equity research analyst for Daiwa Bank in Hong Kong, in a research note to brokers Monday.

Goldminers bucked the slightly bearish trend, as the metal rose around 1%, to $863.71 an ounce in Singapore after hitting a four-month low Friday. Shares in goldminers have failed to rise in the recent rally in Hong Kong.

Zijin Mining ( ZIJMF) gained 0.4%, to HK$7.11, and Zhaojin Mining ( ZHAOF) leapt 4.3%, to HK$12.26. Sino Gold ( SIOGF)climbed 3.4%, to HK$37.70.

On the mainland, airlines were notable risers as the price of oil remained steady at around $116 a barrel. Air China ( AIRYY) soared 10%, to 16.31 yuan, and China Eastern Airlines ( CEA) rose by the same percentage, to 11.79 yuan.

Airline stocks were also gaining attention from investors as Olympic theme stocks such as Li Ning ( LNNGF) showed strength in Hong Kong. Li Ning gained 0.4%, to HK$24.80. Dealers said that some of the recent momentum in Chinese share prices has been a result of excitement over a potential rally during the summer, when the Olympic games take place.

In other Asian news, data released today showed that shares in Taiwan received the most attention from foreign investors during April. Taiwanese stocks received net capital inflows of $5.4 billion in April vs. $4 billion of redemptions in the first quarter this year. The Taiex lost 1.4%, to 8837.07. In Japan, the yen weakened to 105.39 vs. the dollar, from 105.31 Friday.

Markets in South Korea were closed for a holiday. In India, the Bombay Sensitive Index fell 0.6%, to 17,490.90.

Be sure to check out the Far East Portfolio at Stockpickr.com to find out which Indian and Chinese companies are making big moves and announcing major news.

Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at www.theglobalperspective.biz. He lives in New York.

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