By Jun Ebias and Lu Jianxin HONG KONG/SHANGHAI, March 15 (Reuters) - Shares in China fell to their lowest intraday level in three weeks on Monday, dragging Hong Kong stocks lower, on worries Beijing may continue to tighten liquidity to fight inflation. Trade volume in both markets remained thin, as wary investors stayed on the sidelines ahead of the outcome of the Federal Reserve meeting this week. Concerns about more supply haunted the Chinese stock market after regulators allowed eight firms such as Chongqing Water Group Co to launch initial public offerings this week. The Shanghai Composite Index ended the morning at 2,978.505 points in shrinking turnover, after posting a second weekly loss in a row last week as higher-than-expected February consumer inflation data fuelled concern over another round of official liquidity tightening moves. The Chinese central bank is seen raising banks' reserve requirement ratios as early as this week, while some players say it may wait a while before raising benchmark deposit and lending rates. "Investors see no opportunities to make a profit under current market conditions and many are choosing to get out for the time being or to stay on the sidelines, making trade very sluggish," said a senior trader at a major Chinese brokerage in Shanghai. Traders said the index had the potential to fall further, given weak investor confidence, but should be able to find support at its 250-moving average, at 2,930 points at midday. Turnover was thin at 41 billion yuan ($6 billion), although up from Friday morning's 39 billion yuan, with losing stocks prevailing over gainers by 690 to 193. Trading was dominated by speculation in small-cap shares, with a decline in the volume of funds flowing into the markets weakening investors' ability to trade index heavyweights, traders said. Small-cap Taiji Computer Corp was the morning's biggest faller, plunging 9.32 percent to 54.60 yuan after more than doubling on Friday on its first day of trading, reflecting typical speculative trade in newcomers to the Chinese market. Canny Elevator fell 8.32 percent to 33.49 yuan and Sichuan Danfu Compressors was down 7.87 percent at 25.63 yuan, becoming the morning's second- and third-biggest losers, also after a surge in their listing debut on Friday. Citic Securities Co edged up 0.18 percent to 27.76 yuan after it said over the weekend that it planned to give up part of its stakes in two subsidiaries to bring it in line with regulatory requirements. HONG KONG TRACKS SHANGHAI The benchmark Hang Seng Index closed down 0.86 percent or 182.82 points at 21,026.92 at midday. Turnover rebounded slightly to HK$27.6 billion ($3.6 billion) from midday Friday's HK$25.58 billion, but still below Thursday's HK$33.45 billion. The China Enterprises Index of top locally listed mainland Chinese stocks was down 1.72 percent at 11,963.69. "Trading has been thin in the last few days. That's why the momentum for any rise is not there, until we see better turnover down the road," said Alfred Chan, chief dealer at Cheer Pearl Investment. China Shenhua Energy Co Ltd was down 3.6 percent. The world's most valuable coal producer warned that government policies could raise its costs after reporting weaker-than-expected fourth-quarter results. China Merchants Bank slid 2.6 percent, amid strong interest on its rights issue of yuan-denominated A shares. China Taiping Insurance eased 2.3 percent. The insurer said on Monday that it had entered into an agreement to sell Ming An Insurance Company (China) outright. Chinese car and battery maker BYD Co was up 0.8 percent, retreating from earlier gains, after posting a forecast-beating quarterly profit. CNOOC reversed earlier gains and was down 0.8 percent. China's biggest offshore oil explorer planned a venture with Argentina's Bridas Energy and would pay $3.1 billion for a 50 percent stake in Bridas Corporation. Outperforming the market, Dynamic Energy Holdings was up 8.6 percent. The gold producer said on Monday that it would issue HK$1.2 billion ($154.7 million) in convertible notes, raising proceeds to repay a bond and to finance acquisitions and the restructuring of 22 coal mines in Henan province. ((Editing by Jonathan Hopfner)) ((jun.ebias@thomsonreuters.com; +852 2843 6537; Reuters Messaging: jun.ebias.reuters.com@reuters.net)) Pan-Asia...... Japan........ S.Korea.... S.E. Asia............ Hong Kong... Taiwan..... Australia/NZ......... India....... China...... OTHER MARKETS: Wall Street........... Gold......... Currency.. Eurostocks........... Oil........... JP bonds... ADR Report.......... LME metals.. US bonds... Stocks News US... Stocks News Europe... 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