(Updates with midday close)
HONG KONG, Dec 20 (Reuters) - Hong Kong's main stock index ended the morning session slightly lower on Friday, as investors, shaken by heightened fears of a U.S.-led war against Iraq, sold down blue-chip stocks.
China's largest offshore oil producer CNOOC Ltd was the biggest blue-chip loser, down 2.38 percent to HK$10.25, succumbing to profit-taking after gaining seven percent this week on higher oil prices.
"The market is quiet. But we are still holding above 9,500, which is an important level," said Kenny Tang, associate director at Tung Tai Securities.
The benchmark Hang Seng Index ended the morning down 0.42 percent, or 39.83 points, to 9,518.03 points, after dipping to a low of 9,478.92.
Investor confidence faltered after the United States said Iraq was in "material breach" of a United Nations disarmament resolution, intensifying fears that a war between the two is inevitable.
Trade was light as investors were unwilling to hold on to positions ahead of the Christmas holidays but the slack was taken up by trading in futures contracts, dealers said.
Turnover was HK$2.4 billion (US$307.8 million), compared with HK$3 billion on Thursday morning.
Bucking the downtrend, Hong Kong fixed-line phone firm PCCW Ltd gained 1.65 percent to HK$1.23. Sentiment toward the beaten-down stock was bolstered after Credit Lyonnais Securities Asia (CLSA) upgraded its investment rating on the stock to "buy" from "underperform".
CLSA said that a recent share price correction was overdone and troubled major shareholder British firm Cable & Wireless was unlikely to sell its 14-percent stake on the open market, removing fears of a share overhang. PCCW shares had lost eight percent in the past month before the start of trade on Friday.
Conglomerate Wheelock & Co Ltd gained 0.91 percent to HK$5.55, bouncing back after its shares sank by nearly seven percent on Wednesday as a restructuring plan disappointed investors.
Dealers said there was talk that the plan to take a subsidiary private was only the first step in a restructuring drive and further moves could emerge next year.
China Unicom, the mainland's second largest cellular operator, was knocked 1.82 percent lower to HK$5.40.
Its larger rival, China Mobile , was off 0.52 percent to HK$19.00. The firm said earlier on Friday that its subscriber base rose by 1.77 percent in November from October, trailing a national gain of 2.29 percent.
China Mobile said it had 115.61 million users at the end of November, compared with 113.6 million at the end of October.
Losers were outpacing gainers 216 to 140, with 464 stocks unchanged.
(US$1=HK$7.8)