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Hang Seng breaks support at 20,000

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Yuan slides to lowest since August

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Chip, defence shares hit hardest

(Updates to close)

By Jiaxing Li

HONG KONG, Nov 12(Reuters) - Hong Kong stocks tumbled to

a seven-week low on Tuesday and Chinese markets notched their

heaviest fall in nearly a month on worries a China hawk will be

appointed as the United States' top diplomat and take a hard

line on trade and tariffs.

Hong Kong's benchmark Hang Seng collapsed through

support at the 20,000 level and closed 2.8% lower at 19,846.

The Shanghai Composite closed 1.4% lower at

3,421.97, its largest one-day drop since mid October, and the

yuan slid to a three-month trough.

Donald Trump is expected to tap U.S. Senator Marco Rubio to

be his secretary of state, sources told Reuters on Monday,

arguably the most hawkish option on Trump's shortlist and

someone who has advocated for a muscular China policy.

Chip stocks were knocked from a three-year high

with heavy selling across technology related shares and in

strategic sectors that had rallied in recent sessions on bets

that state support would offset any U.S. crackdown.

"The market is now worrying that there will be more rapid

negative China policy emerging from the Trump administration,"

said Steven Leung, executive director of institutional sales at

brokerage UOB Kay Hian in Hong Kong.

"Their hawkishness could be more than expected."

Trump has also picked Mike Waltz to be his national security

adviser, two sources familiar with the matter told Reuters, a

retired Army Green Beret who has been a leading critic of China.

China's blue chip CSI300 fell 1.1% with the

semi-conductor sub-index dropping 2.7% and

chipmaker SMIC tumbling 8% in Hong Kong. Reuters

reported over the weekend that the U.S. ordered chip giant TSMC

to halt shipments of advanced chips to Chinese

customers.

CSI defence stocks slid 4.3% and an index of

stocks in the navigation satellite industry fell

2.7%.

Hong Kong's technology sector fell more than 4%

with e-commerce titans favoured by foreign investors, such as

Alibaba ( BABA ), down 3.8%, JD.com ( JD ), down 5% and

other consumer-focused firms among the largest losers.

DOWNBEAT DATA

A tougher-than-expected export environment is particularly

worrying for investors since China's economy has been sputtering

and authorities have repeatedly disappointed expectations for

government spending to stimulate domestic demand.

Most recently on Friday, a highly-anticipated policy meeting

resulted in a plan to restructure local debt but no new or

urgent plans to encourage consumption which have been missing

from a slew of supportive announcements since late September.

Data this week also highlighted weak and deteriorating

confidence, with consumer price growth the slowest in four

months in October and new lending collapsing to a three-month

low, according to figures released late on Monday.

China's yuan fell for a third straight session

against a runaway dollar, skidding to its weakest since early

August at 7.2390 per dollar.

"Weak loan growth for both households and corporates

continues to underscore fragile domestic demand," analysts at

Bank of America said in a note.

"The recent pivot in policy stance was a welcoming sign but

more is warranted to stabilise growth."

Market volume was heavy with above-average trade in Shanghai

and Hong Kong, as shares in the latter quickly retrace

September's explosive rally.

"From a pure price action point of view HK is trading below

the lows on Sept. 27 ... which means all those who bought on and

after Sept. 27 are now sitting on losses," said Wong Kok Hoong,

head of equity sales trading at Maybank in Singapore.

"And probably cutting positions."