HK shares plunge 12.7 pct in biggest drop since '97

* HSI falls below 12,000 points; lowest since mid-2004

* HSI posts biggest one-day drop since 1997

* HSBC mauled by crisis fears

* Energy stocks slump amid extended pullback in crude prices

(Updates to close)

By Jun Ebias

HONG KONG, Oct 27 (Reuters) - Hong Kong shares plunged 12.7 percent in their biggest single-day drop since 1997 on Monday, led by blue-chip heavyweight HSBC (0005.HK: Quote, Profile, Research, Stock Buzz), as fears of a global recession hammered Asian financial markets.

The benchmark Hang Seng Index .HSI closed down 1,602.54 points at 11,015.84, its lowest level since mid-2004 and taking its losses so far this year to 60 percent. The index lost as much as 15 percent earlier, its largest one-day decline since 1987.

Europe's largest lender, HSBC (0005.HK: Quote, Profile, Research, Stock Buzz) shed 14.77 percent to HK$75.00, its lowest level in seven years and wiping US$20 billion off its market value. The stock plunged 12.5 percent on Friday after Morgan Stanley slashed its target price to HK$75 on growing signs of trouble in emerging markets.

"There is panic selling in the market," said Kenny Tang, associate director at Tung Tai Securities. "Investors are still bracing for the bottom."

The losses came as Japan's Nikkei average fell 6.4 percent to its lowest in 26 years as the surging yen will further weaken the nation's exports, hurting the economy. Banks tumbled on concerns they would need to lift their capital. [ID:nT105401]

"Banks are chronically under capitalised, which means credit rationing process is still very much likely," said Tim Rocks, equity strategist with Macquarie Securities, Hong Kong.

Expectations that the U.S. Federal Reserve will further trim its key interest rates this week to more than four-year lows failed to calm investors.

ICBC, the world's largest bank by market value, slid 11.11 percent after it reported on Friday a slower pace of growth in third-quarter earnings and posted bigger-than-expected impairment losses on subprime mortgage-linked assets.

The China Enterprise Index .HSCE of top locally listed mainland companies tumbled 14 percent to 4,990.08, following a drop in the mainland markets.

Energy stocks were among the day's biggest losers on worries slowing growth in the mainland may cut demand for fuel.

Asia's largest oil and gas producer, PetroChina (0857.HK: Quote, Profile, Research, Stock Buzz), fell 15 percent, while the region's biggest refiner, Sinopec Corp (0386.HK: Quote, Profile, Research, Stock Buzz), gave up 16.44 percent.

Offshore oil specialist CNOOC (0883.HK: Quote, Profile, Research, Stock Buzz) slid 13 percent while top coal miner China Shenhua Energy (1088.HK: Quote, Profile, Research, Stock Buzz) dropped 23.55 percent.

Mainland property developer Guangzhou R&F Properties (2777.HK: Quote, Profile, Research, Stock Buzz) tumbled 22.34 percent. The stock earlier tested a life low of HK$2.30 after a slew of support measures from the government to prop up the ailing sector failed to revive investor confidence. The company had shed more than a fourth of its market value by midday to stand at HK$3.52.

Bourse operator Hong Kong Exchanges & Clearing (0388.HK: Quote, Profile, Research, Stock Buzz) shrank 13.89 percent as dwindling turnover weighed on the company's earnings outlook.

"Nobody can tell for sure where the support levels are or where the bottom is," said Castor Pang, strategist with Sun Hung Kai Financial

"The current bear market trends point to continuous declines in the market as fund managers unload their positions in the face of increased redemptions."

Aluminum Corp of China Ltd (2600.HK: Quote, Profile, Research, Stock Buzz), fell 12.5 percent after the world's No.3 alumina producer said on Sunday its quarterly earnings plunged 92 percent, lagging forecasts, while its outlook was clouded by high costs and sliding aluminium prices.

Datang International Power (0991.HK: Quote, Profile, Research, Stock Buzz) slumped 19 percent after it said on Sunday it expected its earnings to fall about 85 percent in 2008 on soaring coal costs.

The country's second-largest power producer reported a net loss of 432.9 million yuan ($63.2 million) for the third quarter ended September, according to Chinese accounting standards.

Rival Huaneng Power (0902.HK: Quote, Profile, Research, Stock Buzz) dropped 14.25 percent. (Additional reporting by Kevin Plumberg and Dominic Whiting; editing by Anne Marie Roantree)