(Adds midday close, movers)
HONG KONG, June 25 (Reuters) - Hong Kong stocks extended losses by midday on Friday but hopes that institutional money may soon come to the market from China continued to boost China plays.
The benchmark Hang Seng Index ended the morning session 0.09 percent lower, or 10.66 points, at 12,153.02. The Hang Seng China Enterprise Index , which groups Chinese stocks listed in Hong Kong or H-shares, advanced 1.71 percent to 4,260.40.
"Sentiment is quite positive at the moment. My guess is the index could ride higher to 12,250 next week despite some bumps along the way," said Alfred Chan, chief dealer of Cheer Pearl Investment.
Traders said heavyweights such as HSBC and Sun Hung Kai Properties dragged the Hang Seng lower because of selling ahead of the settlement of index futures contracts next week.
HSBC, the city's biggest bank and the largest constituent stock on Hang Seng, lost 0.43 percent to HK$116.00. Sun Hung Kai, Hong Kong's biggest developer, fell 0.79 percent to HK$62.75.
HSBC, the world's second-biggest bank by market value, said on Thursday it hopes to buy a 19.9 percent stake in Shanghai-based Bank of Communications. Analysts have estimated the deal could be worth as much as US$1 billion.
BOC International said in a research note on Friday that the debt-laden Chinese bank may need a "serious capital injection".
China auto stocks were broadly higher with Denway Motors gaining 2.59 percent to HK$2.975 after Goldman Sachs retained its 'outperform' rating on the stock with a forecast 77 percent sales volume growth year-on-year for 2004.
Sluggish sales in April and May, tightening credit policy and a looming price war sparked a sell-off on auto stocks recently.
But Goldman said in a research note on Friday that a visit to a General Motors' plant in Shanghai confirmed its view that sales of strong branded vehicles appear robust in the first two weeks of June compared to weak figures in May.
Other makers such as AviChina and Great Wall Auto rode 4.65 percent and 2.63 percent higher, respectively.
Elsewhere in H-shares, logistics firm Sinotrans , cargo firm China Shipping Development and miner Yanzhou Coal were among the day's top performers with gains between 4.17 percent and 5.77 percent.
"There's rumours that QDII could be announced before July 1, and you can see it is offering support to H-shares in today's mixed market," said Kenny Tang, an associate director at Tung Tai Securities.
The official Shanghai Securities News said on Friday that China Life Insurance has applied for a licence to invest in overseas securities markets, making it possibly one of the first Chinese insurers to be allowed to do so under the Qualified Domestic Institutional Investor scheme.
Regulators and officials are still deliberating a framework and timeline for the launch of QDII, which would allow Chinese investors to buy overseas securities through institutions such as mutual funds. Some market insiders say guidelines could be released in coming months.
Once the government gives the go-ahead, China Life would choose to invest in overseas bonds instead of short-term securities, as they are less risky, the newspaper quoted a company official as saying.
Investors snapped up China shares on Thursday on news that mainland insurers might soon be allowed to invest overseas, meaning some $8 billion could flow into markets such as Hong Kong.
Mainland media said regulators were already drafting rules for overseas investments by domestic insurers, but sources cautioned that the drafting process was in the very early stages and the plan still required final approval from China's cabinet.