Hong Kong shares gained for a second-straight session on Tuesday, but trading was thin as investors stayed on the sidelines ahead of economic data releases from China and the United States this week.

The Hang Seng Index ended up 1.7 percent at 20,204.2 points, but its headed for its biggest monthly drop since October 2008 as a result of the global turmoil.

Valuations don't really work when markets are declining and derating, what you need to do is to look at the macroeconomic markers, said Adrian Mowat, JP Morgan's Chief Emerging Markets Strategist, told Reuters Television.

It is far too early to move into cyclicals. The timing for that is when the GDP numbers have been downgraded and when inflation have come off in the bigger economies...like China, he added.

Turnover on the Hong Kong bourse on Tuesday surged to its highest since Aug. 9, partly due to the sale of an $8 billion stake in China Construction Bank Corp (CCB) by Bank of America Corp's (BofA) .

CCB alone accounted almost a fifth of total turnover, a trader said. The stock surged more than 4 percent in early trade, but ended up 1.8 percent.

Dealers and analysts said some investors took intra-day profits on the stock, suggesting investors remained cautious on the stock despite the BofA sale removing a source of uncertainty.

Other than asset quality concerns, Jackson Wong, vice-president of equity sales at Tanrich Securities, said investors were also concerned about who bought BofA's stake other than Singapore state fund Temasek Holdings Pte Ltd .

SHANGHAI PARES EARLY GAINS, ENDS LOWER

The Shanghai Composite Index pared early gains to end down 0.4 percent 2,566.6 points as A-share turnover stayed thin, suggesting investors remained cautious after Beijing's latest move late last Friday to contain money supply.

Leading losses were materials, with the Shanghai materials sub index down 0.7 percent. PetroChina Co Ltd and China Petroleum & Chemical Corp (Sinopec) were the top drags on the Shanghai benchmark.

The interpretation of banks' liquidity contraction remains divided in the market, said a senior dealer major brokerage firm in Shanghai.

Investors are waiting for clearer signals from the central government to see whether this is indeed a new move of further tightening.

Ba Shusong, a researcher with the Development Research Centre, a cabinet think-tank, said that the latest move by China's central bank suggests it's still too early to relax monetary policy.

Banks limited losses despite retreating from early intra-day peaks. Large banks such as Industrial and Commercial Bank of China (ICBC) held onto gains, but smaller names such as Bank of Ningbo Co and Hua Xia Bank Co lost between 1 and 2 percent.

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