HK shares plunge 7 pct; headed for worst wk in 11 yrs

* HSI at near 3-year low, headed to worst week in 11 yrs

* Main index at less that half its peak value in Oct 2007

* All index stocks in the red

(updates to mid-day)

By Parvathy Ullatil

HONG KONG (Reuters) - Hong Kong shares sank 7 percent to a nearly three-year low on Friday, after a steep drop on Wall Street set off a new wave of selling by investors worried about the risks of a global recession.

The main index is headed for its worst week since the market meltdown of 1997, having relinquished more than 17.5 percent at today's low.

"It's not about valuations, it's not about fundamentals, it's only about sentiment. And for as long as the sentiment is this weak, we will continue to fall," said Andrew Sullivan, sales trader with Main First Securities.

The valuations of blue chip stocks is languishing at a 10 year low and rapidly heading towards the bottom touched during the Asian financial crises of 1997-98.

"The rate cuts have had no impact and the bailout plan will kick in only next month...investors are concerned," he said.

The benchmark Hang Seng Index .HSI dropped 1121.31 points to 14,821.93 after earlier falling to 14,585.29, its lowest since November 2005.

Brokers said there was no sign of panic-selling on Friday, since most retail investors apparently had sold down their holdings in the first part of the week while funds had most likely pulled out their money earlier on.

Mainboard turnover stayed slim at HK$32.6 billion, compared with HK$33.1 billion at mid-day on Thursday.

The main index has shaved off more than half its value since it hit a peak of 31,958.41 in October 2007, piggybacking on China's resurgent economy and financial markets.

Only 17 of the 1,088 traded issues rose on Friday, while the Hang Seng Index and China Enterprises Index were awash with red tickers.

The China Enterprises Index .HSCE of top locally listed mainland Chinese companies shed 8 percent at 7,127.02.  Continued...