China shares log worst session in a month: HK extends losses on Mideast war

Mainland Chinese stocks booked their worst session in a month on Tuesday, while Hong Kong shares extended their decline, as the escalating Middle East conflict dampened sentiment across regional markets.

The Middle East war has broadened, with Israel conducting air operations against Hezbollah in Lebanon, while Iran launched attacks on U.S. targets across the region.

The benchmark Shanghai Composite index .SSEC closed down 1.43%, while the blue-chip CSI300 Index .CSI300 dropped 1.54%. Both indexes booked their biggest daily decline since February 2.

The start-up board ChiNext Composite index .CNT plunged 2.57%. Shanghai's tech-focused STAR50 index .STAR50 dropped 5.21% to book the worst session since October 10.

Hong Kong's benchmark Hang Seng Index .HSI lost 1.12%, after falling 2.14% a day earlier. The city's tech shares .HSTECH tumbled 2.26%.

Rare earth .CSI930598, semiconductor .CSI931865 and defence .CSI399973 stocks led market losses, plunging 6.44%, 5.15% and 7.58%, respectively, as investors booked profits.

Energy stocks outperformed broader markets. The sector sub-index .CSIEN jumped 5.52%, as rising oil prices boosted investor confidence in energy companies' profits.

Oil majors CNOOC 600968.SS, PetroChina 601857.SS and China Petroleum & Chemical Corp 600028.SS hit their daily upside limits for the second day.

"The Middle East conflict's primary economic impact on China is through oil prices," Citi said in a note.

"The oil shock could cause headline PPI (producer price index) to turn positive earlier than expected, while Chinese CPI is largely insensitive."

Market attention will now shift to the annual meeting of China's parliament, which convenes from March 5, where major economic targets and the year's agenda will be mapped out.

"Geopolitical risk typically proves to be a transient market theme unless it triggers a structural shift in key prices such as oil," Societe Generale analysts said in a note.

"Ultimately, domestic factors are likely to dominate over geopolitical risks," they said, noting China's National People's Congress (NPC) will serve as an opportunity to calm concerns.

-Shanghai Newsroom, Sherry Jacob-Phillips and Harikrishnan Nair/Reuters