HK suffers worst one-day loss since '08 crisis, China shares end flat  

(Updates to close)

* Hang Seng slumps 5.7 pct, Shanghai Composite down 0.03 pct

* Afternoon short covering helps HK cut earlier losses: trader

* Mutual funds unwinding positions add to selling pressures: trader

* Surging property and financial names cut Shanghai losses

* Market bets China central bank could delay interest rate hike

By Clement Tan and Yixin Chen

HONG KONG/SHANGHAI, Aug 9 (Reuters) - Hong Kong shares plummeted on Tuesday in the biggest one-day decline since the 2008 financial crisis, with mutual funds selling off cyclical stocks and knocking the benchmark Hang Seng index down 5.7 percent to the lowest since June 2010.

Investors covered some short positions in the afternoon session, trimming losses ahead of the Federal Reserve's policy-setting committee meeting later in the day, but a fresh selloff hitting Europe suggested sentiment on equities could deteriorate further.

"Talk of government funds buying stocks in Korea, Taiwan and Australia seems to have supported the markets. A lot of these indices are deeply oversold," said Tom Kaan, a Hong Kong-based director at Louis Capital Markets.

"But all eyes are on the FOMC right now for some sort of credible stimulus. If that isn't forthcoming, then I expect some real money hanging on to longs bailing out," Kaan added.

The Hang Seng benchmark closed down 5.7 percent at 19,330.7 points, its sixth-straight loss, sinking to its most oversold level on the charts since the 1997 Asian financial crisis as turnover surged to its second-highest in nine months.

On October 27, 2008, the Hang Sang tumbled 12.7 percent.

With today's fall, the benchmark is now down 22.6 percent from its cyclical high in mid-November 2011, meeting the technical definition of a bear market.