* HSI -1.3 pct, H-shares -2 pct, CSI300 -1.4 pct
* Italy's political crisis sparks risk-off mode in Hong Kong
* Recent record China fund drain not tightening: state media
By Clement Tan
HONG KONG, Feb 26 (Reuters) - Hong Kong shares sank to theirlowest close this year on Tuesday, with financials and othergrowth-sensitive sectors the bigger losers as Italy's politicaluncertainty made investors wary of risky assets.
The mainland markets shed midday gains and closed at theirlowest in more than a month, with the property, premium alcoholand railway sectors hurt by local media reports of policyrumblings before next week's annual parliamentary meetings.
The Hang Seng Index fell 1.3 percent to 22,519.7, itslowest closing since Dec. 21. The China Enterprises Index of the top Chinese listings in Hong Kong slid 2 percent.
Short selling accounted for 12 percent of total turnover inHong Kong on Tuesday, according to traders. This is above thehistorical 8 percent average and the highest in at least threemonths.
The CSI300 of the top Shanghai and Shenzhenlistings dropped 1.4 percent to its lowest close since Jan. 17.The Shanghai Composite Index shed 1.4 percent to itslowest close since Jan. 25.
"This is not a good entry point for those who have missedthe rally at the start of the year," said Hong Hao, Bank ofCommunication International's chief strategist.
He added that uncertainties over post-election Italy, thecontinuation of U.S. quantitative easing and Japan's new centralbank governor will likely rise and could roil markets in comingweeks.
Investors will also be watching comments from FederalReserve Chairman Ben Bernanke at a two-day congressionaltestimony starting later on Tuesday that will subject itsbond-buying programme to tough scrutiny and gauge his confidencein the resilience of the U.S. economy.
Hong said expectations for China's parliamentary meetings"are also too high. The meetings will be about the big pictureand longer-term goals. Specific details are highly unlikely."
The annual Chinese People's Political ConsultativeConference and National People's Congress, where Xi Jinping isexpected to be confirmed as China's president, start in Beijingon March 3 and 5, respectively.
On Tuesday, railway counters slid after the Guangzhou-based21st Century Business Herald newspaper reported that a plan tomerge China's railways ministry with the communications ministryhas been submitted for consideration.
China Railway Construction fell 3.4percent in Shanghai and 2.7 percent in Hong Kong. China RailwayGroup slid 3.3 percent in Shanghai and 2.7percent in Hong Kong.
Chinese insurers sank after local media, citing data fromthe insurance regulator, reported that premium income in Januarydeclined 2.5 percent from a year earlier to 125.5 billion yuan(US$20.12 billion), the first fall in seven years.
China Life Insurance , the country'slargest insurer, slid 3 percent in Hong Kong to its lowest closesince Dec. 4. It has fallen nearly 17 percent from a Jan. 7peak. China Life's Shanghai listing shed 1.9 percent on Tuesday.
Shares of HSBC Holdings, Europe's largest bank,fell 1.4 percent to their lowest since Jan. 16 and was the topdrag on the Hang Seng Index.
Premium alcohol producer Kweichow Moutai wentdown 2.1 percent in Shanghai, while smaller rival Wuliangye lost 2.3 percent in Shenzhen after the officialXinhua news agency said the government planned to toughenanti-corruption rules. The liquors are popularly given as gifts.
NO CHINA TIGHTENING, YET
Strength in smaller banks accounted for early gains onmainland indexes, but gains came off in the afternoon. Still,Ping An Bank jumped 4.2 percent in Shenzhen, whileChina Minsheng Bank rose 0.6 percent after localmedia reported both stopped mortgage lending in Beijing.
The Chinese property sector was further roiled on Tuesday bya report in the official Shanghai Securities News that thecentral government will release detailed property marketregulations soon.
China Vanke sank 1.7 percent in Shenzhen and hasnow slumped 14.6 percent from a Jan. 30 peak on fears of furthertightening in the sector after recent home-price rises.
Tightening fears were further fanned when the central banklast week drained a record 910 billion yuan from the bankingsystem. Official media moved on Tuesday to dispel those fears.
The official Shanghai Securities News reported that thesuspension of fund injections this week does not mean China willtighten monetary policy as the economic recovery is not solid.
In a report on Tuesday, brokerage CICC said last week's movewas in response to the ultra-loose money supply conditionsbefore Lunar New Year, but the draining of funds was a warningagainst the high growth of informal financing in January.
HSBC Holdings (HSBA)