HKEx tumbles 5 pct on falling turnover,bleak outlook

HONG KONG, July 7 (Reuters) - Shares in bourse operator Hong Kong Exchanges & Clearing Ltd (HKEx) (0388.HK: Quote, Profile, Research) tumbled more than 5 percent on Tuesday, dragged down by broker downgrades on dwindling daily turnover and a dim outlook for the second half.

The stock fell to its lowest level since mid-August 2007, before a scheme to allow mainland Chinese individuals to invest directly in Hong Kong stocks was proposed.

Morgan Stanley slashed its target price on the stock to HK$85 from HK$120 on Monday, deeming HKEx expensive at its current valuation of 22 times the brokerage's 2008 earnings estimate.

Daily turnover on the exchange averaged HK$65 billion last month, sharply lower than last year's HK$88 billion.

A slowdown in most major global economies, aggressive credit tightening in China and rising prices of commodities have put investors on the sidelines this year.

The benchmark Hang Seng Index .HSI has fallen more than 20 percent this year. (Reporting by Parvathy Ullatil; Editing by Anne Marie Roantree)