HK shares drop 1% on higher bond yields, policy tightening fears

* Hang Seng index ends down 1.06%

* China Enterprises index HSCE falls 1.76%

* IT index drops 4.42% as Tencent drags

Feb 22 (Reuters) - Hong Kong shares shed early gains to close 1% lower on Monday, as investors fretted over stretched valuations while concerns over the risks of policy tightening in China also weighed.

** At the close of trade, the Hang Seng index was down 324.90 points or 1.06% at 30,319.83, reversing gains marked earlier in the day. ** The Hang Seng China Enterprises index fell 1.76% to 11,893.68. ** Tencent Holdings Ltd was the biggest drag in the Hang Seng index, falling 3.71% and pulling the IT sector 4.42% lower. The IT index hit a record high last week. ** The financial sector ended 0.32% higher, lifted by HSBC Holdings, which rose 2.09% as the bank prepares to announce annual results and an updated “transformation plan”. ** Global equity investors have been unsettled by a rise in global bond yields, with benchmark German 10-year bond yields hitting an eight-month high on Monday, and U.S. Treasury yields touching one-year highs. ** And while China left its benchmark lending rate for corporate and household loans unchanged for a 10th straight month on Saturday, speculation has been rising of a shift to tighter policy. ** “Although the (People’s Bank of China) has commented that it won’t lift rates this year - seven-day repos and one-year CDs are almost unchanged - the authorities are certainly not generous with liquidity anymore,” analysts at Jefferies said in a note. ** China’s main Shanghai Composite index closed down 1.45% at 3,642.44 points, while the blue-chip CSI300 index ended 3.14% lower. ** Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.19%, while Japan’s Nikkei index closed up 0.46%. ** The yuan was quoted at 6.4685 per U.S. dollar at 0822 GMT, 0.13% weaker than the previous close of 6.4598.

Reporting by Andrew Galbraith