HONG KONG Feb 26 (Reuters) - Hong Kong's securities regulator has won a two-year battle to wind up Hong Kong-listed China Metal Recycling Holdings Ltd (CMR), in a victory that bolsters its authority to sanction overseas companies it suspects of wrongdoing.

The case was widely seen as a test of the watchdog's ability to pursue firms based abroad but listed in Hong Kong, where around 60 percent of public companies are from mainland China.

In July 2013, the Securities and Futures Commission (SFC) invoked a special provision of Hong Kong's securities law to force China's self-styled biggest recycler of scrap metal into provisional liquidation, alleging evidence of accounting fraud.

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It was the first time the SFC had used the power to sanction a listed company.

The SFC said CMR overstated its financial position in the prospectus for its 2009 initial public offering. It also said around 38 percent, 64 percent and 90 percent of gross profits for 2007, 2008 and 2009, respectively, were fictitious.

On Thursday, the watchdog argued for the company to be wound up at Hong Kong's High Court.

A late bid by minority shareholders to push for company restructuring was pushed aside when Judge Jonathan Harris ruled in favour of the regulator, saying there was "compelling evidence" that CMR had engaged in "industrial scale fraud".

In a statement, Mark Steward, SFC executive director of enforcement, called the watchdog's investigation "challenging".

"This is an audacious and dishonest scheme to deceive Hong Kong investors and creditors," Steward said. "Liquidators will be able to conduct an independent assessment of the company's real position."

CMR did not contest Thursday's proceedings, though its former management does not accept liability. Calls by Reuters to CMR's Hong Kong office went unanswered.

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It is not certain that liquidation will ultimately be in the best interests of CMR's shareholders and creditors, said regulatory experts.

CMR is incorporated in the Cayman Islands and operates in Hong Kong and Macau, but its most valuable assets are in mainland China where Hong Kong rulings are not automatically recognised, they said.

"For shareholders and creditors to realise any value in CMR, there may still have to be court cases in the Cayman Islands and on the mainland," said Michael Cheng, China and Hong Kong research director at the Asian Corporate Governance Association.