HK shares end 0.7 pct higher as airlines rise

* Late rally in helps HSI close higher

* Chinese airlines soar on lower crude prices; CNOOC slumps

* Turnover remains thin (Updates to close)

By Parvathy Ullatil

HONG KONG, Sept 2 (Reuters) - Hong Kong shares recouped earlier losses to add 0.7 percent, lifted by gains in airline stocks and refiner Sinopec as crude prices fell back.

CNOOC fell 5.2 percent after U.S. crude prices extended losses on speculation that a weaker-than-expected Hurricane Gustav would not lead to any major supply disruption. Prices had run up in the wake of the approaching storm.


Lower oil prices propped up shares in Air China , the nation's biggest international airline, which gained 8.7 percent to close at a near one-month high of HK$4.11.

China Southern Airlines rallied 9.5 percent while Asia's third largest airline Cathay Pacific rose 3.5 percent.

A range of stocks, including power utility CLP Holdings and conglomerate Swire Pacific , crept higher in afternoon trade as investors wagered two days of sharp declines in oil prices would lift Wall Street, which was closed on Monday for a public holiday.

"It is very encouraging to see the way oil prices collapsed as soon as the threat of a major supply disruption abated. It shows that oil is still on the back foot," said Howard Gorges, vice chairman with South China Brokerages.

The benchmark Hang Seng Index .HSI closed 136.15 points higher at 21,042.46 after dropping to 20,595.59 earlier.

Mainboard turnover fell to HK$49.4 billion ($6.3 billion) from Monday's 1-1/2-year low of HK$41.1 billion.

"Given the slim turnover in the market it is pretty easy for short sellers to push the market lower. We still haven't hit a level which will support strong buying," said Gorges.

U.S. markets were closed on Monday for Labor Day.

End-of-the-session short covering lifted index heavyweights HSBC Holdings and China Mobile more than 1 percent each.

Sinopec Corp, Asia's biggest refiner, advanced 3.2 percent with lower crude oil prices seen easing pressure on its refining margins.

Shares in port operator China Merchants Holdings jumped 4.4 percent after it reported 33 percent growth in first half net profit at HK$2 billion.

The China Enterprises Index .HSCE of top locally listed mainland Chinese firms slipped 1.2 percent.

Retreating oil prices drove up the U.S. dollar, reducing the safe haven appeal of bullion. Gold miner Zijin Mining fell 6.2 percent to a one week low of HK$4.85, while Lingbao Gold dropped 4.2 percent.

Aluminum Corp of China slipped 2.8 percent as investors fretted over a bigger-than-expected fall in first-half profits as the company grapples with falling prices for its main products.

Shares in China Resources Power fell 3.6 percent after Deutsche Bank downgraded it to "hold" on valuation grounds. (Reporting by Parvathy Ullatil; Editing by Louise Heavens)