HONG KONG - Hong Kong shares suffered their worst loss in more than three weeks on Wednesday, dragged by a 3.4 per cent slump for index heavyweight China Life Insurance after it reported a bigger-than-expected decline in July premium income.

Th e lower premium adds to worries about its first half corporate earnings, which the mainland's largest insurer is expected to post on Aug. 28. China Life's investment in the mainland Chinese stock markets is also likely to weigh on its profitability.

The Hang Seng Index closed down 1.2 per cent at 20,052.3, staying above chart support seen at 19,966. This is the bottom of a tight 240-point range the benchmark has moved since Aug. 6.

In the mainland, the CSI300 Index of the top Shanghai and Shenzhen listings ended down 1.1 per cent, which is its lowest level since Jan. 6. The Shanghai Composite Index shed 1.1 per cent to finish at its lowest since Aug. 2, nearing 3-1/2-year lows.

Turnover in Hong Kong dived almost 25 per cent from Tuesday, the lowest full-day level in more than a week, while volumes in Shanghai declined almost 20 per cent from the day before to the lowest in eight sessions.

Investors are watching the earnings season for concrete signs of the impact China's slowdown is having on local companies, particularly since underwhelming data last week had dampened expectations of an imminent earnings recovery.

"Yes, expectations may be very pessimistic, but there are still no signs that things will improve from here. There has been a lot of talk about policy support, but not a lot of details," said Edward Huang, an equity strategist with Haitong International Securities.

Chinese internet giant Tencent Holdings slipped 0.2 per cent ahead of its first half corporate earnings.

Its shares are up more than 47 per cent this year to date as investors opt for its earnings visibility that some analysts have touted as being resilient to the slowdown in China's economy.

In a sign that some investors think its outperformance is overdone, short interest accounted for 27 per cent of its total turnover on Wednesday. Tencent had the highest short selling turnover in Hong Kong.

After markets closed on Wednesday, it announced a second-quarter net profit of 3.1 billion yuan (S$612 million), roughly matching the average estimate of 3 billion yuan in a Reuters poll of eight analysts.

EARNINGS PESSIMISM OVERDONE?

In a sign that earnings pessimism could be overdone, Anhui Conch Cement outperformed the market after posting a 51 per cent decline in first half net profit - which was a better result than the company had warned about earlier.

Its Hong Kong shares finished flat, while rising 1.1 per cent in Shanghai. In 2012, Anhui is down 12.8 per cent in Hong Kong and 8.2 per cent in Shanghai, both underperforming benchmark indices in their respective markets.

Goldman Sachs analysts advised clients to buy into Anhui's shares because they expect cement prices to be the first to rebound in the fourth quarter when the low summer season ends and construction activity picks up.

Other resources-related sectors were however weak. China Shenhua Energy Co Ltd lost 1.6 per cent each in Hong Kong and Shanghai as spot coking coal prices decline and Chinese coal producers struggle with oversupply.

The National Development and Reform Commission (NDRC), a top government economic planning agency, set China's total coal output for 2012 at 3.65 billion tonnes, an increase of just 3.7 per cent from year ago and a deceleration from the 8.6 per cent growth of last year and 9 per cent the year before, according to a statement seen by Reuters on Wednesday.