China shares drop as Washington and Beijing clash over consulates

* SSEC -2.25%, CSI300 -2.99%, HSI -1.83%

* China orders closure of U.S. consulate in Chengdu

* Further Sino-U.S. disputes likely ahead of U.S. elections: CCB

SHANGHAI, July 24 (Reuters) - China shares slumped on Friday as investors fretted over a sharp escalation of tensions between Beijing and Washington after China said it would retaliate against the U.S. move to close its consulate in Houston.

** China ordered the closure of the U.S. consulate in the southwestern city of Chengdu, after earlier saying it “must” retaliate to the U.S. closure of its Houston consulate. ** The announcement came after China’s stock market paused for its midday break, but mounting tensions had already pulled the benchmark Shanghai Composite index sharply lower in the morning session. ** At the midday break, the Shanghai Composite index was down 2.25% at 3,250.37 points, and the blue-chip CSI300 index slumped 2.99%. ** U.S. Secretary of State Mike Pompeo also took aim at China, calling for Washington and its allies to use “more creative and assertive ways” to press the Chinese Communist Party to change its ways. ** “Another escalation in tensions in the Sino-U.S. relationship is extremely unfavourable to economic recovery under the impact of the pandemic,” China Construction Bank analysts wrote in a note. ** “We expect that before the dust settles on November’s U.S. presidential election, the U.S. will repeatedly provoke contradictory disputes with China. We will closely monitor the implementation of the Phase 1 trade deal between the U.S. and China,” they said. ** Chinese H-shares listed in Hong Kong fell 1.99% to 10,119.61, while the Hang Seng Index was down 1.83% at 24,801.69. ** The smaller Shenzhen index was down 2.96% and the start-up board ChiNext Composite index was weaker by 4.31%. The index tracking the 50 most representative stocks on Shanghai’s STAR market fell 4.53%. ** Around the region, MSCI’s Asia ex-Japan stock index was weaker by 1.56% while Japan’s Nikkei index was down 0.58%. ** The yuan was quoted at 7.0189 per U.S. dollar, 0.21% weaker than the previous close of 7.004. (Reporting by Andrew Galbraith; Editing by Rashmi Aich)