* SSEC -0.1 pct, CSI300 -0.4 pct, HSI -1.1 pct
* Hong Kong Monetary Authority expects increases in outflows
* China May money supply grew at slowest pace in 20 years
SHANGHAI, June 15 (Reuters) - Hong Kong stocks fell to a three-week low on Thursday as borrowing costs in the city looked set to rise after a U.S. rate hike overnight, while shares in China slid on persistent fears that economic growth will soon start to cool.
Hong Kong's benchmark Hang Seng index dropped 1.1 percent to 25,601.68 points by the lunch break, touching the lowest level since May 29. Still, the gauge is up 16 percent this year.
Selling was more intense in mainland companies. The Hong Kong China Enterprises Index lost 1.5 percent, to 10,362.12, on track for its biggest loss in six weeks.
Hong Kong's central bank raised its base rate 25 basis points earlier in the day after the U.S. Federal Reserve lifted its policy rate as expected overnight. Hong Kong rates move in line with the U.S. due to the city's currency peg.
The head of the Hong Kong Monetary Authority (HKMA), Norman Chan, said he expects banks in the territory to gradually raise mortgage rates, which could hit shares of property developers.
China shares, which are less vulnerable to global capital flows, also weakened, amid signs that Beijing's deleveraging campaign has made some progress in reducing liquidity in the financial system. Tighter credit conditions, in turn, are expected to drag on economic activity in coming months.
The blue-chip CSI300 index fell 0.4 percent to 3,519.68 points, while the Shanghai Composite Index lost 0.1 percent to 3,127.19.
Although the Federal Reserve's rate rise was expected, Chair Janet Yellen's more-detailed plans to reduce the Fed's balance sheet was viewed by some as negative to equities in Asia.
The move would "reduce market liquidity over the long term and could impact the performance of equities and other assets," China Investment Securities (HK) wrote in a report on Thursday.
Echoing such a view, the HKMA's Chan said he expects there could be an increase in capital outflows from the financial hub due to arbitrage trade with the local currency.
Although China on Thursday didn't follow the Fed in raising rates, as it did with short-term rates in March, analysts pointed out that borrowing costs in the country's interbank market have already risen sharply this year, as money supply in May grew at the slowest annual rate in over 20 years.
"We're seeing more equity supplies but less liquidity, so China's stock market will likely remain sluggish," said Wei Jianfei, analyst at Lianchu Securities.
Traders say the market is also worried that profit growth at listed Chinese firms could stagnate.
Data this week showed that China's economy generally remained on solid footing in May, but tighter monetary policy, a cooling housing market and slowing investment reinforced views that it will gradually lose momentum in coming months.
Most sectors fell in both China and Hong Kong, with the decline in Hong Kong led by the real estate sector, which is vulnerable to higher borrowing costs.
(Reporting by Samuel Shen and John Ruwitch; Editing by Kim Coghill)