SHANGHAI, June 5 (Reuters) - China's blue chip stocks dropped on Monday as Sino-U.S. tensions overshadowed optimism from a private-sector survey that showed services activity in the world's second-largest economy accelerated last month. Hong Kong shares edged higher.

** China's blue chip CSI300 Index closed down 0.5%, while the Shanghai Composite Index edged 0.1% higher.

** Hong Kong's benchmark Hang Seng was up 0.8% and the Hang Seng China Enterprises Index added 0.6%.

** Most other Asian stock markets extended a global rally on optimism the Federal Reserve would pause its rate hikes this month after a mixed U.S. jobs report, while oil prices jumped after Saudi Arabia pledged big output cuts.

** The Caixin/S&P Global services purchasing managers' index (PMI) rose to 57.1 in May from 56.4 in April, as a rise in new orders shored up the economic recovery in the second quarter.

** China property stocks retreated from a rally seen on Friday amid speculation that policymakers will roll out stimulus policies to bolster the battered sector.

** "We see outperformance of Chinese equities resuming in 2H23 as easing steps up, macro recovery broadens out and geopolitics stabilise. Stay OW (overweight) on China within EM/APxJ but trim active risk," according to a note from Morgan Stanley.

** China's CSI 300 Real Estate Index fell 1.1%, and Hong Kong's Hang Seng Mainland Properties Index declined 0.9%.

** Consumer staples lost 1.5% and new energy stocks declined nearly 2% even after state media reported that China will extend and optimise a purchase tax exception on new-energy vehicles.

** Chinese Defence Minister Li Shangfu said on Sunday the conflict with the U.S. would be an "unbearable disaster", but that his country seeks dialogue over confrontation.

** China's military rebuked the United States and Canada for "deliberately provoking risk" after the countries' navies staged a rare joint sailing through the sensitive Taiwan Strait.

** Tech giants listed in Hong Kong edged 0.4% higher.

(Reporting by Shanghai Newsroom; Editing by Sherry Jacob-Phillips)