The Hang Seng Index closed up 0.3 per cent, while the China Enterprises Index of the top Chinese listings in Hong Kong shed 0.8 percent as bourse turnover sank to its lowest in a week, some 15 per cent below its 20-day average.
The CSI300 of the leading Shanghai and Shenzhen listings ended down 0.3 per cent in a fourth-straight daily loss. The Shanghai Composite Index also slipped 0.3 per cent as volume lingered some 14 per cent below average.
The Chinese property sector was the one bright spot, extending gains after the official Shanghai Securities News reported that the central bank will not require local lenders to raise mortgage rates uniformly to curb housing prices.
"I think investors will remain broadly cautious this week and most of April," said Larry Jiang, chief investment strategist at Guotai Junan International Securities.
"May has not been a good month historically, but with China data looking like it will continue to underwhelm, some will be thinking of beating the market before any sell-off next month," Jiang added.
On Tuesday, HSBC Holdings, Europe's largest bank, rose 1.2 per cent, tracking broader European market strength, after closing on Thursday at its lowest since the start of the year.
But Chinese banks suffered heavy losses in Hong Kong after China's official manufacturing purchasing managers' index came in on Monday at 50.9, an 11-month high but below a 52.0 Reuters poll consensus.
Mid-sized lenders China Minsheng and Citic Bank were further hammered by 2012 corporate results announced late on Thursday that were seen of an inferior quality as key performance indicators such as net interest margins and non-performing loans came in worse than expected.
Citic Bank suffered a slew of broker downgrades after it cut dividend payout by 25 per cent as NPLs increased 43 per cent. Its Hong Kong shares slumped 6 percent on Tuesday, its heaviest loss in 10 months.
Some analysts also cautioned about risks from their interbank and wealth management product businesses as China's banking regulator ramps up regulation.
But in a note on Tuesday, Credit Suisse advised clients to stay "overweight" on the Chinese banking sector, given that "the extent is still not clear and no clear evidence of disastrous impact yet."
"The key to any calls on banks will be the direction of macro economy. We still believe in a mild recovery scenario, which will be good for the market and banks, on a 6-9 month horizon," said Credit Suisse's China equity strategists Vincent Chan and Peggy Chan in the same note.
Chinese pharmaceutical stocks were among the major drags in the onshore market after the official Economic Information Daily newspaper reported that drug price reforms may hurt the profits of pharmaceutical distributors.
Zhejiang Hisun Pharmaceutical Co Ltd fell 4.4 per cent in Shanghai and Beijing SL Pharmaceutical Co Ltd dived 9.1 percent in Shenzhen.
Industrial recovery in China?
Angang Steel was an outperformer in Hong Kong, jumping 12.5 percent in its best gain in 16 months after the Chinese steel producer said on Friday it expects to have swung from losses to profits in the first quarter.
JP Morgan analysts upgraded their tactical view on Angang's Hong Kong listing from "neutral" to "overweight", citing the company's cost cutting measures as a positive surprise. They also upped their target price by more than 40 per cent.
But in a sign of the patchy recovery in China's industrial sectors, Zoomlion Heavy Industry plunged 10 per cent after missing expectations with its 2012 final results late on Thursday, which triggered a slew of brokerage downgrades.
According to Thomson Reuters StarMine, of the 75 percent of China-listed companies that have reported 2012 earnings, nearly 75 per cent have missed expectations. In Hong Kong, 91 per cent have reported, with more than half having disappointed.
In both markets, the consumer staples and material sectors were among those with the highest percentage of disappointments.
Shares of China Vanke in Shenzhen had a third-straight gain, having climbed 1.8 per cent, following more signs that the fresh curbs on home sales will not be as draconian as previously feared. — Reuters