* China, Hong Kong stocks extend steep selloff
* Property, tech, education hit by regulatory tightening fears
* Delta variant behind cluster in city of Nanjing
SHANGHAI, July 27 (Reuters) - Chinese A-shares and Hong Kong's benchmark index extended heavy losses to hit multi-month closing lows on Tuesday, as investors worried over the impact of tighter government regulations, while a surge in COVID-19 cases dealt a further blow to sentiment.
China's blue-chip CSI300 index ended down 3.53% at its lowest close since November, extending Monday's 3.2% selloff. Losses spanned the financial, consumer staples and real estate sectors.
The Shanghai Composite index gave up early gains to end 2.49% lower at 3,381.18, its lowest close since March 25.
Falls were wide-ranging, with the CSI financial sector sub-index down 3.17%, the consumer staples sector off 4.75% and the healthcare sub-index down 3.9%.
In late trade in Hong Kong, the benchmark Hang Seng Index was down as much as 5.46% after a 4.1% drop in the previous session, and the Hang Seng China Enterprises Index plunged as much as 6.78%.
The Hang Seng Tech index crashed through its previous record low, falling more than 9%.
The rout came after a shakeout on Monday spurred by new rules reining in China's $120 billion private tutoring sector, sending some shares crashing more than 45%, and new regulatory moves targeting technology and property.
"Beijing's severe crackdown on the tech and education sectors had ignited the re-pricing of significant regulation risks on investment for Chinese private companies," Ken Cheung, chief Asian FX strategist at Mizuhuo Bank, said in a note.
"As such, foreign investors will request a deeper discount on such Chinese investment or even cut the exposure on Chinese companies," Cheung added.
Education shares continued to slide on Tuesday, with New Oriental Education & Technology Group Co falling 7.25%, taking its drop over the last three sessions to more than 70%, while the CSI education index tumbled 5.18%.
WORST-CASE SCENARIO
Anita Chu, an analyst at CCB International, said in a research report the unfavourable regulatory environment had left little room for a business turnaround, and issued a downgrade and reduced target price for New Oriental.
"If the final version of the policy comes to resemble its current form, we envision a worst-case scenario whereby existing listed-AST (after-school tutoring) operators will be compelled to spin off their K9 AST operations from the listco, or else de-list by way of privatisation," Chu said.
"According to our estimates, the potential spinoff of K9 AST operations would take 60-70% off the earnings of New Oriental and 80-90% off (New York-listed) TAL Education."
In Hong Kong, heavily indebted developer China Evergrande Group extended its losses, spiralling more than 16% lower to 4-1/2 year lows, after the company said it would cancel a special dividend proposal.
The broader property sector in Hong Kong sank 3.6% and real estate A-shares ended 4.51% lower.
Adding to broader concerns about the economic outlook, profit growth at China's industrial firms slowed for a fourth straight month in June, as high raw material prices weighed on factories' margins.
A surge in highly contagious Delta variant COVID-19 cases centred on the eastern city of Nanjing also spurred concern on Tuesday.
But Zhiwei Zhang, chief economist at Pinpoint Asset Management, said broader economic concerns were contained for now.
"The market correction seems to reflect some investors' concern about government's policy stance on the capital market. We don't think investors are concerned about the economy at this stage," he said in an emailed comment.
But pointing to rising concern late on Tuesday, China's yuan turned around sharply from small gains against the dollar to weaken past the 6.5 per dollar level. It was last quoted at 6.5103 per dollar, 0.43% weaker on the day.
The offshore yuan also whipsawed lower, blasting through the 6.5 level to a low of 6.5225 per dollar, down more than 0.6% from a day earlier.