At closing bell, the benchmark Hang Seng Index rose marginal 9.33 points, or 0.05%, to 20,165.84. The Hang Seng China Enterprises Index was down 8.77 points, or 0.13%, to 6,876.71.
Market managed to close above boundary line on Monday, after the China's securities regulator chief said stable capital market operations is a top priority, adding the regulator would aim to maintain consistent policy expectations.
However, market gains capped after data showed that China's factory activity actually contracted in July as fresh virus flare-ups weighed on demand. The official National Bureau of Statistics survey showed manufacturing purchasing managers' Index (PMI) fell to 49.0 in July, as China's strict COVID restrictions, prolonged crisis in the property sector and falling global demand slowed production in the country. Another private survey also showed manufacturing expanded at a slower pace last month, as fresh virus flare-ups and a darkening global outlook weighed on demand.
The market focus this week would be on U.S. House of Representatives Speaker Nancy Pelosi's Asian tour, and a possible stop in Taiwan that could send a chill through already cool relations between Beijing and Washington.
China's President Xi Jinping warned his U.S. counterpart Joe Biden last week that Washington should abide by the one-China principle and "those who play with fire will perish by it".
Shares of property developers were down after data showed home sales extended a plunge amid a widening mortgage boycott, while China Evergrande Group failed to unveil a preliminary restructuring plan by the end of July as it had long promised. Investor mood also soured on signs that Beijing is prioritizing the completion of homes for social stability over developers' financial health.
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