(Adds close)
HONG KONG, Oct 24 (Reuters) - Hong Kong's key share index fell on Thursday as mild profit-taking set in following recent gains, but the blue chip index managed to claw back steeper losses from the morning session.
After being burned by several short, bear market rallies in recent months investors are trading carefully, cashing in on signs of weakness but hoping the latest Wall Street rally will be sustained.
"There will be ups and downs on Wall Street, but I think we are still in the midst of a mini rally," said Herbert Lau, associate director at Celestial Asia Securities.
The benchmark Hang Seng index ended down 17.16 points or 0.18 percent to close at 9,787.49. Reflecting investor uncertainty, turnover was thin at HK$5.26 billion (US$674 million), below the 20-day average of HK$5.99 billion.
The Hang Seng has lost 14.12 percent so far this year, making it one of the worst performing markets in Asia.
Most of the day's losses came from global banking giant HSBC Holdings , Hong Kong's biggest stock by market capitalisation.
Weighed down by renewed concerns about weak economies and exposure to bad debt, the bank took more than 17 points off the HSI as it fell 0.57 percent to HK$87.
However, HSBC shares in London were up 0.91 percent at 721 pence as European trading got underway. If they can hold onto those gains, it could give the Hong Kong market a boost on Friday.
Putting a dampener on the market was international rating agency Standard & Poor's, which cut its outlook on Hong Kong's long-term local currency rating to negative from stable just minutes before the open, citing persistent weakness in the economy and the government's gaping budget gap.
However, analysts said most investors had already factored in the weakness of the Hong Kong economy prior to the change, and were looking more to U.S. markets for direction.
Shares of select Chinese state firms bucked the slide in blue chips as investors' bet that the rapidly growing mainland economy will boost sales.
China's largest van maker Brilliance China Automotive Holdings Ltd reversed earlier losses to end 2.06 percent higher at HK$0.99.
The stock resumed trading after it said Chinese authorities had approved the arrest of its former chief Yang Rong for suspected involvement in economic crimes.
Yang, ranked by Forbes magazine as China's third richest man, has said he is innocent, Hong Kong newspapers reported on Thursday. The company said its operations would not be affected.
Tsingtao Brewery rose 4.2 percent to HK$3.725, in the after glow of a US$182 million deal which will see Anheuser-Busch , the world's number one brewer, increase its stake in Tsingtao over seven years.
Hang Seng's mainland composite index slid just 0.01 percent to 10,008.56, outperforming the benchmark HSI.
(US$=HK$7.8)