(Updates to midday)
* HSI, CSI300 both down 0.6 pct
* China PMI fails to cheer, Europe weighs
* Low HK turnover, high short-selling to lead to more weakness -Julius Baer
* China infrastructure-related sectors still strong
By Clement Tan
HONG KONG, May 24 (Reuters) - Hong Kong and China shares fell on Thursday, with underwhelming China data doing little to tempt investors back to a market that has been characterized by low turnover and elevated short-selling interest.
Europe's debt problems also weighed, with signs that the region's leaders were unable to deliver meaningful measures to resolve the crisis, heightening the risk of Greece leaving the currency bloc.
The HSBC Flash Purchasing Managers Index, the earliest indicator of the strength of China's industrial sector, retreated to 48.7 in May from 49.3 the month before, pointing to lingering weakness even as policymakers seek to shore up growth.
The Hang Seng Index and the China Enterprises Index of the top Chinese listings in Hong Kong have declined more than 7 percent since official April data pointed to a worse slowdown in the world's second-largest economy.
The Hang Seng Index benchmark had fallen 0.6 percent by midday on Thursday, while the China Enterprises Index had shed 0.5 percent. They could be on track for their fourteenth and thirteenth daily losses in the last three weeks respectively.
In the mainland, the Shanghai Composite Index slipped 0.3 percent, while the large cap-focused CSI300 Index lost 0.6 percent. They are now likely to outperform Hong Kong for a second straight month.
The MSCI China Index dropped 0.7 percent and is now down 0.3 percent on the year. According to Thomson Reuters I/B/E/S, it is currently trading at 8.6 times forward 12-month earnings, the lowest this year and a 30 percent discount to its average over the past decade.
"It's not a good time now to buy on the dip despite historically cheap valuations because of strong uncertainty in the near-term," said Alan Lam, Julius Baer's Greater China equity analyst.
He added that low turnover and elevated short selling interest could prod Hong Kong markets lower. Shorting interest in Hong Kong accounted for almost 15 percent of total bourse turnover on Thursday, the highest since Feb. 1999.
China Mobile was the top drag on the Hang Seng, losing 2.5 percent.
Chinese banks were also broadly weaker in Hong Kong, with China Construction Bank (CCB) slipping 0.8 percent.
Chinese oil majors extended falls. PetroChina Co Ltd shed 0.6 percent in Hong Kong and 0.5 percent in Shanghai. China Petroleum & Investment Corp (Sinopec) declined 0.3 percent in Hong Kong and 0.6 percent in Shanghai.
Infrastructure-related sectors extended gains this week after China Premier Wen Jiabao said on Wednesday that Beijing would step up policy fine-tuning to support the economy, his second statement in four days on the matter.
China Railway jumped 4.1 percent in strong volume, with Deutsche Bank touting the stock as among its top picks.
Sany Heavy Industrial gained 1.7 percent in Shanghai, while Anhui Conch Cement was up 1.1 percent in Shanghai and 1.6 pct in Hong Kong.
Corporate governance was under the spotlight in Hong Kong for a third-straight session.
Trading in shares of Chinese Estates Holdings was suspended on Thursday after the Hong Kong developer said its chairman and CEO Joseph Lau would face prosecution in a Macau court over alleged bribery and money laundering. (Additional reporting by Vikram Subhedar; Editing by Joseph Radford)