* HSI flat, H-shares -0.7 pct, CSI300 -1.0 pct
* 1st use of 14-day forward repo in 8 months spooks investors
* Fosun Pharmaceutical spikes after Chindex deal
* Agriculture outperforms, state media spurs policy hopes
HONG KONG, Feb 18 (Reuters) - Shanghai shares fell from a two-month high early on Tuesday, weighing on Hong Kong stocks, after China's central bank drained 48 billion yuan ($7.92 billion) from the country's money market.
This comes as cash rates fell after official data on Saturday showed China's banks issued the biggest amount of loans in a single month in four years. The People's Bank of China (PBOC) had drained 450 billion yuan last week as it continued to taper a pre-Lunar New Year cash injection.
At midday, the Shanghai Composite Index was down 0.5 percent at 2,125 points after having closed on Monday at its highest since Dec. 18. The CSI300 of the largest Shanghai and Shenzhen A-share listings sank 1 percent.
The Hang Seng Index was flat, while the China Enterprises Index of the leading offshore Chinese listings in Hong Kong shed 0.7 percent. Both had finished Monday at their highest closing levels in about three weeks.
"The PBOC draining of funds today is a reason for the weak market, but it's more an adjustment of liquidity after the Lunar New Year," said Cao Xuefeng, a Huaxi Securities analyst based in Chengdu.. "I don't think anybody is taking this as a sign of that the central bank is tightening policy."
Chinese banks were among the leading index drags after the PBOC used 14-day forward bond repurchase agreements for the first time in eight months to withdraw cash from the market.
Mid-sized China Citic Bank tumbled 3.7 percent in Shanghai and 0.5 percent in Hong Kong despite trumping expectations with a 26.2 percent rise in preliminary 2013 profit.
The central bank has been trying to engineer a gradual upward shift in the cost of money in order to encourage Chinese firms to deleverage and to discourage high-risk shadow banking activity.
Chinese insurers extended their outperformance this week after another reported robust January premium income growth. New China Life Insurance's H-share listing climbed 2.7 percent after reporting a 131 percent spike from a year earlier.
Shanghai Fosun Pharmaceutical Group jumped more than 4 percent in both Shanghai and Hong Kong after the company became the largest shareholder in Chindex International Inc. Fosun and private equity firm TPG said they will take the hospital operator private in a $369 million deal.
Agriculture-related counters outperformed, buoyed by a report in the official China Securities Journal that land reforms will take the policy centre-stage at the annual parliamentary meeting which opens on March 3.
Heilongjiang Agriculture jumped 5.1 percent in Shanghai. First Tractor rose 1.2 percent in Shanghai but slipped 0.6 percent in Hong Kong.
Hong Kong lender Bank of East Asia spiked 3.8 percent ahead of its earnings later in the day.
BEA, still down nearly 4 percent this year after an 11 percent rise in 2013, is trading at 11.6 times forward 12-month earnings, a 19 percent premium to its historical median, according to Thomson Reuters StarMine.