(Update closing prices)

SHANGHAI, May 26 (Reuters) - The Hong Kong stock market,

which reopened on Tuesday after a public holiday, ended flat as

excitement toward chipmaking overcame jitters around Beijing's

crackdown on illegal cross-border trading.

Shanghai stocks dipped as tech shares corrected, but big

investment banks led blue-chips higher on bets they will benefit

from regulators' clamp-down on brokers moving Chinese money

offshore without a license.

China on Friday launched an industry-wide crackdown on

illegal cross-border investment, and punished online brokers

Tiger, Futu and Longbridge.

The campaign, which requires a wind-down of illegitimate

trading accounts in two years, could affect as much as HK$294

billion ($37.53 billion) in Hong Kong, Kaiyuan Securities

estimates.

Yuan Yuwei, hedge fund manager at Trinity Synergy

Investments, said China's tighter capital control could hit Hong

Kong-listed small-caps, but the impact on the broader market

would be limited.

"I believe we are still in a big bull run underpinned by

hard technology," he said.

Hong Kong's Hang Seng Index swung between losses and

gains before ending the session flat.

China's blue-chip CSI300 Index rose 0.5% while the

Shanghai Composite Index dropped 0.2%.

An index of Hong Kong small-caps - which are

vulnerable to reduced liquidity - fell 2%. Shares of Bright

Smart, a small broker in Hong Kong, tumbled 5%.

But China Securities Co jumped 4% in Hong Kong and

6% in Shanghai. Other major Chinese investment banks,

including China International Capital Co

and China Galaxy Securities also rose

sharply.

"Demand for global asset allocation will persist, but

increasingly shift toward compliant channels," Guotai Haitong

Securities said in a report, recommending major brokers with a

global footprint and stakes in top mutual fund companies.

Mood in Hong Kong was also aided by a frenzy around

chipmaking, after Chinese tech champion Huawei Technologies said

on Monday it will make industry-leading semiconductors using a

new technology in five years.

An index tracking Hong Kong-listed chipmakers surged

6%, led by Chinese chip giants Hua Hong Semiconductor

and Semiconductor Manufacturing International Corp.

"I'm very bullish toward SMIC. It's China's answer to TSMC,"

fund manager Yuan said, referring to the Taiwanese chip foundry.

"SMIC's strategic importance is even greater than companies

like PetroChina and CATL."

In China, tech shares corrected after Monday's

jump.

($1 = 7.8342 Hong Kong dollars)

(Reporting by Shanghai Newsroom; Editing by Paul Simao and

Mrigank Dhaniwala)