HONG KONG, Sept 21 (Reuters) - Hong Kong stocks recovered from early losses to trade flat on Tuesday, a day after worries about the future of embattled developer China Evergrande Group shook markets around the world.

The Hong Kong benchmark dropped over 1% after the bell before paring gains, and was last down 0.02% at 02.44 GMT and China Evergrande was volatile but was last down 3.5%.

A broad index tracking property and construction stocks gained 0.7%, bouncing back from sharp declines on Monday led by Guangzhou R&F Properties which was last up 4% after the developer said it would raise as much as $2.5 billion by borrowing from major shareholders and selling a subsidiary.

"The market is a bit stable this morning, and investors are seen willing to cover their short positions," said Steven Leung, a sales director at UOB Kay Hian in Hong Kong.

R&F Properties' fund raising news had helped sentiment a bit, but "markets are waiting to see what's next with default risk still a high concern," he added.

Mainland Chinese stock markets are closed for the mid-autumn festival till Sept. 21 and will reopen on Wednesday, Sept. 22.

Evergrande, China's most indebted developer, faces a major test this week as it is due to pay $83.5 million in interest relating to its March 2022 bond on Thursday. It has another $47.5 million payment due on Sept. 29 for March 2024 notes.

Overnight, the S&P500 shed 1.70%, its biggest drop in four months, which analysts attributed to worries about Evergrande shaking already jittery markets.

Chinese tech stocks listed in Hong Kong also fell on Tuesday, with Meituan losing 2.7% and Alibaba shedding 1.7%.

Both the Hong Kong dollar and the Chinese yuan, traded offshore, steadied after weakening to three-week low against the dollar in the previous session. (Reporting by Alun John and Donny Kwok; Editing by Rashmi Aich)