*

Hong Kong's Hang Seng dives 13% as trade war fans

recession

fears

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China's CSI300 closes down 7%, state fund steps in

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UBS economist warns of significant economic impact

(adds state support in paragraph 3, quotes in paragraphs 15-16,

updates prices throughout)

SHANGHAI, April 7 (Reuters) - Hong Kong stocks

experienced their biggest drop since 1997 on Monday after

Beijing fired back at U.S. tariffs with its own trade levies,

deepening market turmoil amid fears of a widening trade war,

while China's sovereign wealth fund intervened to stabilise

local shares.

Hong Kong's Hang Seng index slumped 13.2%, the

biggest one-day decline since 1997, with shares of tech, solar,

banking and online retailers plunging as investors swiftly

pulled out of anything linked to global growth and trade.

China's CSI300 blue-chip index ended lower by 7%

as Central Huijin, or the so-called "national team" of

state-backed investors, said in the afternoon session that it

has increased holdings of Chinese stocks to defend market

stability. Trading volume for some ETFs linked to the CSI300

index soared.

The yuan slipped to its lowest since January and

bonds rallied sharply.

China, which is now facing U.S. tariffs of over 50%,

responded in kind on Friday by slapping extra levies on U.S.

imports.

The intensifying spat between the world's two biggest

economies threatens to upend trade flows, and besides hitting

Chinese earnings, it is also expected to drive a slowdown in

global demand at a time of stuttering growth in China.

"I think the impact of this shock is going to be quite

significant," said UBS chief China economist Tao Wang on a call

with investors on Monday. "It was challenging to achieve the

government's growth to start with. And now it's even more

challenging."

Trading volumes were heavy, particularly as Chinese markets

had been shut on Friday when selling was heaviest in the U.S.

and other financial centres.

The Hang Seng Tech Index plummeted by 17%, marking

its worst single-day performance since records began. The index

was down 27% in a month, and close to where it began the year

before the DeepSeek-inspired rally.

"The Asia move this morning is partly a catch-up from Friday

for markets... so I wouldn't say there's been a disproportionate

move today - it's a blanket risk off," said Ben Bennett, head of

investment strategy for Asia at LGIM in Hong Kong.

Mainland indexes of solar companies and

household appliance makers notched losses around

10%. Selling was almost as strong in oil and gas shares, as the

prospect of a global recession hammered oil prices, and sectors

from electric vehicles to cloud computing.

The Hang Seng volatility index shot to its highest

since March 2022.

Hong Kong-listed shares of HSBC tumbled 15% and

Standard Chartered stock was down 16%.

In the absence of any hint of a backdown from the White

House, the focus for investors will be on Beijing to come up

with measures to support Chinese exporters and shore up the

domestic economy.

"Beijing will have little option now but to accelerate

domestic consumption, so more measures to stimulate demand are

expected," said Steven Luk, CEO of FountainCap Research &

Investment.

"We are not degrossing but looking to take advantage of the

selloff in buying names with more exposure to domestic demand."

Shares in online giants Alibaba ( BABA ) and Tencent ( TCTZF )

were down 18.0% and 12.5%, respectively.