China stock rally pauses on stake cuts, U.S. sanctions

SHANGHAI, July 10 (Reuters) - Mainland China shares on Friday ended lower for the first time since June 29 after the country's state funds announced stake cuts in companies, a move that comes following a torrid bull run in the stock market, and on signs of renewed Sino-U.S. tensions.

** The bull run, encouraged by state media, has been fuelled by signs of an early economic recovery for China from the coronavirus, capital market reforms and accelerating inflows of foreign funds.

** At the close, the Shanghai Composite index was down 1.95% at 3,383.32, while the blue-chip CSI300 index was down 1.81%. The start-up board ChiNext Composite index was higher by 0.754%.

** People's Insurance Co (Group) of China and three China-listed tech companies said their major state shareholders plan to reduce holdings, dampening broader investor sentiment.

** The move came after regulators cracked down on margin financing and as Chinese official media urged retail stock investors to be prudent.

** The market could face a correction risk in the short term, analysts at Everbright Securities said in note.

** Denting sentiment further were reports that the United States imposed sanctions on the highest ranking Chinese official yet targeted over alleged human rights abuses against the Uighur Muslim minority, a move likely to further ratchet up tensions between Washington and Beijing.

** Though for the week, the stock rally remained strong. SSEC gained 7.3% in the week, while CSI300 climbed 7.5%, both posting their best week in more than five years.

** The tech-heavy start-up board index advanced 12.8% for the week, its best since the launch of the index in 2010.

** "Now investors should pay attention more to opportunities than risks, as A-shares are not overvalued," said Jin Jing, an analyst with Caitong Securities.

** Investor enthusiasm would be hard to cool down for now, after the Shanghai benchmark index .SSEC rallied past the landmark 3,000-point level, while a relatively friendly policy environment for the macro economy and capital markets also provides support, Jin added.

** Around the region, MSCI's Asia ex-Japan stock index was weaker by 1.24%, while Japan's Nikkei index closed down 1.06%.

** At 07:22 GMT, the yuan was quoted at 7.0113 per U.S. dollar, 0.27% weaker than the previous close of 6.9924.

** As of 07:23 GMT, China's A-shares were trading at a premium of 33.53% over the Hong Kong-listed H-shares. (Reporting by Shanghai Newsroom, Editing by Sherry Jacob-Phillips)