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HONG KONG, March 5 (Reuters) - Hong Kong shares could sink further on Tuesday, dragged down by Europe's largest bank HSBC Holdings after its 2012 profit miss triggered selling of its London-listed stock.
HSBC is to increase dividends this year in a show of strength over rivals even though the bank's annual profits fell after a money-laundering fine and compensation paid to customers.
Several Chinese policy announcements will also come into focus after outgoing Premier Wen Jiabao kicked off the National People's Congress earlier on Tuesday, putting China's 2013 GDP growth target at 7.5 percent and consumer inflation target at 3.5 percent, according to targets contained in prepared comments for delivery at the start of the NPC.
The Chinese finance ministry said it was raising the quota for bonds issued by local governments to 350 billion yuan in 2013, compared with 250 billion yuan in 2012.
Standard Chartered Bank and Want Want China are among companies due to post final 2012 corporate earnings reports on Tuesday. StanChart is set to post a record $7 billion profit despite a big fine for breaking sanctions on Iran.
On Monday, the Hang Seng Index ended down 1.5 percent at 22,537.8, just above last Tuesday's two-month closing low. The China Enterprises Index of the top Chinese listings in Hong Kong sank 2.1 percent.
FACTORS TO WATCH:
* China will increase military spending by 10.7 percent this year to 740.6 billion yuan, the government announced on Tuesday, building on a nearly unbroken succession of double-digit rises in the defence budget across two decades.
* China will actively develop its clean energy sources and aims to boost hydropower, nuclear and wind generation capacity by a total of 42.24 million kilowatts in 2013, the government said in a work report on Tuesday.
* Hang Seng Bank reported a 15 percent rise in 2012 net profit to HK$19.4 billion.
* Italian fashion house Prada SpA said Italian authority has implemented a new financial transaction tax for transfer of shares issued by Italian companies.
* China Hanking Holdings Ltd said it expected to record a substantial decrease in profit for 2012 due to a decline in selling price of iron concentrates.
* Hanergy Solar Group Ltd said it expected to see an increase of more than 30 percent in 2012 profit compared to 2011 on declining costs, impairment of trade receivables and intangible assets.(Reporting by Clement Tan and Donny Kwok; Editing by Stephen Coates)