Hong Kong protesters defy Beijing with pro-democracy demonstration.

By Farah Master and Clare Baldwin

HONG KONG (Reuters) Pro-democracy protesters in Hong Kong faced tear gas and batons from police, but stood firm during protests in the Asian financial hub on Monday, in one of the biggest political challenges for Beijing since the Tiananmen Square incident 25 years ago.

China blamed the protesting students and warned against any external interference, as young people gathered in commercial and tourist districts of the city in the late afternoon.

"Hong Kong is China's Hong Kong," Foreign Ministry spokeswoman Hua Chunying said defiantly during a press conference in Beijing.

The unrest, the worst in Hong Kong since China took control of the former British colony in 1997, saw clouds of tear gas billowing into the streets around some of the world's most valuable commercial buildings and shopping malls, before police suddenly withdrew before lunchtime on Monday after three nights of clashes.

China governs Hong Kong under a "one country, two systems" formula, which attempts to limit the territory's limited democracy. Thousands of protesters, mostly students, are demanding that Beijing grant full democracy, with the freedom to nominate candidates in elections, but China recently announced it would not go that far.

After the riot police withdrew on Monday, apprehensive protesters slept by the roadside, sheltered from the sun under umbrellas, which have become a symbol of what many are calling the "Umbrella Revolution." In addition to providing protection, these objects have been used as shields against pepper spray.

Nicola Cheung, an 18-year-old student at the local Baptist University, said that protesters in the territory's central district were assessing the situation and planning what to do next.

"Yes, it will become violent again because the Hong Kong government will not accept us occupying this area," she said. "We are fighting for our core values ​​of democracy and freedom, and that is not something that violence can take away from us."

Organizers said that up to 80 people filled the streets after the protests gained momentum on Friday night. There is no independent estimate of these numbers.

The protesters, who have no identified leader, together form a mass movement largely composed of connected students who grew up with freedoms not afforded in mainland China. The movement represents one of the biggest threats to the Beijing Communist Party since the bloody crackdown on pro-democracy student protests in Tiananmen Square in 1989.

A very harsh crackdown could undermine confidence in Hong Kong, a city driven by the financial market, while a failure to react firmly could incite students from mainland China.

Protests are expected to gain momentum on October 1st, China's National Day holiday, and residents of the former Portuguese colony of Macau, near Hong Kong, are already planning a demonstration. Pro-democracy supporters from other countries are also expected to protest, causing further embarrassment to Beijing.

Britain has said it is concerned about the situation in Hong Kong and has called for the right to protest to be guaranteed.

The U.S. Consulate General in Hong Kong issued a statement urging all sides to "avoid actions that would further escalate tensions."

Banks in Hong Kong, including HSBC, Citigroup, Bank of China, Standard Chartered and DBS, have closed some branches and advised employees to work from home or go to other branches.

The Hong Kong Monetary Authority, the city's de facto central bank, said that interbank markets and the foreign exchange mechanism were not affected by the disturbances.

(Additional reporting by Donny Kwok, James Pomfret, Venus Wu, Yimou Lee, Diana Chan, Kinling Lo, Stephen Aldred, Twinnie Siu, Bobby Yip, Lisa Jucca, Greg Torode, Umesh Desai, Saikat Chatterjee, Twinnie Siu and Stefanie McIntyre in Hong Kong)