* Investors cautious over tight liquidity

* Shares recoup early losses on financials

* Index has fallen 22 percent so far this year

By Chen Yixin and Kazunori Takada

SHANGHAI, Dec 27 (Reuters) – Chinese stocks were
little changed by midday Tuesday, recouping earlier losses on
bargain hunting on some financial shares, but trading remained
light due to tight liquidity ahead of the year-end.

Analysts said investors sentiment was expected to remain
bearish after the Shanghai Composite Index fell below
the psychologically important 2,200 level.

“Without money flowing in, the market has no chance to
rebound sharply,” said Chen Shaodan, an analyst at New Times
Securities in Shenzhen.

The index ended the morning session up 0.1 percent at
2,191.2 points, after a 0.7 percent drop on Monday. It has
slumped around 22 percent so far this year.

Turnover in the Shanghai market was at 19.8
billion yuan ($3.12 billion), unchanged from Monday midday.

Reflecting tight liquidity, short-term rates in the money
market pushed up towards a one-month high on Tuesday, with the
benchmark weighted average seven-day bond repurchase rate
rising 25 basis points to 4.4355 percent.

A slew of companies, including China Communications
Construction and Shaanxi Coal Industry, are also lining up to
list on the Shanghai exchange which could further strain market
liquidity, traders say.

The index reversed from as much as one percent drop earlier
on Tuesday due to strength in financial shares, such as New
China Life Insurance, which jumped 6.0 percent, and
Industrial Securities, which rose by its 10 percent
daily limit.

Financial sub-index rose 0.8 percent

“This is typical bargain-hunting,” said Chen. “Because of
the thin trade, only a little money can pull up the index.”
($1 = 6.3364 Chinese yuan)