HONG KONG, Sept 5 (Reuters) - China's stocks steadied on

Friday after steep losses in the previous session, but remained

on course for their biggest weekly falls in five months as

market participants took profits following a two-month rally.

The Shanghai Composite Index lost 0.1% in early

trade. The benchmark has now declined 2.5% this week, on track

for the sharpest weekly drop since early April.

China's blue-chip CSI300 Index swung between gains

and losses in the opening hour, and by mid-morning was down

nearly 3% for the week, set for the biggest decline since

December.

Tech shares led the pullback this week, with the AI sector

down 9.2% and the semiconductor sector

dropping 8.9%. Chip designer Cambricon sank more

than 18%, putting it on track for its biggest weekly loss in

nearly two years.

Selling pressure carried over into Friday as profit-taking

gathered pace following the conclusion of China's largest-ever

military parade, while a Bloomberg News report that Beijing is

considering measures to curb excessive stock speculation led to

market jitters.

The correction snapped a two-month surge that had pushed

Shanghai's benchmark to 10-year highs, powered by record sums of

leveraged bets chasing the rally.

"Risk appetite is weakening as outsized gains triggered

profit-taking and a technical correction," analysts at China

Securities wrote in a note, adding that trading could remain

volatile as the market enters a consolidation period.

China's central bank said on Thursday it would inject 1

trillion yuan into the banking system on Friday via outright

reverse repo operations to keep liquidity "reasonably ample",

interpreted by some as a gesture to calm investors.

"Taking some of the air out of the frothy part of the market

is setting up for a more sustainable path down the line," said

Jerry Wu, a portfolio manager at Polar Capital, based in London.

"It will be a healthy correction and I don't think it

changes the direction of travel, which we do believe is a sort

of innovation-driven rally."

Hong Kong's benchmark Hang Seng was up 0.5% on

Friday, heading to a weekly gain of 0.1%.

(Reporting by Jiaxing Li in Hong Kong; Editing by Muralikumar

Anantharaman)