Hong Kong shares started the last quarter of 2023 sharply lower on Tuesday, as U.S. Treasury yields reaching 16-year high pressured the markets.

The Hang Seng Index dropped 3% to its lowest since November 2022 by the midday recess. The Hang Seng China Enterprises Index fell 3.4%, while the Hang Seng Tech Index lost 2.9%.

Hong Kong markets were closed for a public holiday on Monday and Mainland China markets are closed this week for the Golden Week holiday. The China-Hong Kong stock connect program also suspended trading for the week.

China's factory activity expanded at a slower pace in September, a private-sector survey showed on Sunday, with sluggish external demand weighing on the outlook even as output increased.

The pullback on Tuesday points to no specific reasons as trading volume is muted during the Golden Week, analysts said, but the hawkish U.S. Federal Reserve stance on keeping rates higher for longer continues to weigh on the market.

Benchmark 10-year U.S. notes hit their highest yield since 2007.

All major sectors including tech, property and banking declined. Hong Kong property giant New World Development tumbled to a near 20-year low due to net profit decline and payout cut.

Steven Leung, director of institutional sales at UOB Kay Hian in Hong Kong said the market rose for no reason on Friday, and it's unwinding now.

"If we don't get some good news, it's going to be a bad week," he said, adding that markets generally are very nervous on U.S. rates.

Shares of China Evergrande resumed trading jumped more than 40% earlier in the session, days after the embattled developer said its billionaire founder was being investigated over unspecified crimes.

"Speculators are buying Evergrande, but there's still a lot of uncertainty in the Chinese property sector," Leung said.

Hong Kong-listed mainland property firms fell 4.2%.

(Reporting by Summer Zhen; Editing by Dhanya Ann Thoppil and Rashmi Aich)