Corrected - HSBC to slash investment bank, lowers return targets

(Corrects size of HSBC's balance sheet in para 3 to $2.6 trillion from $2.6 billion)

HONG KONG (Reuters) - HSBC will take an axe to its investment bank and seek to cut up to $5 billion in costs in an effort to improve its sluggish performance, Europe's biggest bank said on Tuesday.

The announcement to the Hong Kong stock exchange came ahead of a presentation to investors and analysts when Chief Executive Stuart Gulliver will give more detail on his second major strategic plan since he took the helm at the start of 2011.

The new strategy, which involves shrinking the global banking and markets division to less than one third of HSBC's $2.6 trillion balance sheet from its current level of around 40 percent, marks a significant but expected shift for the lender.

Investors had been calling for more radical cuts at the global banking and markets division, that Gulliver previously ran for five years, whose returns have suffered in tough market conditions.

"Overall, the statement is what we expected: an opportunity missed to restore investor confidence. HSBC may be shrinking slowly but it remains one of the world's most complex banks," said Jim Antos, analyst at Mizuho Securities Asia Ltd.

HSBC also set its new target for return on equity at greater than 10 percent by 2017, down from its previous target of 12-15 percent by 2016.

It confirmed the planned sale of its units in Turkey and Brazil, adding it would keep a presence in the latter to serve corporate clients.

Despite the changes not going as far as some analysts hoped, HSBC shares rose 0.5 percent in Hong Kong following the announcement, outperforming the Hang Seng Index which fell 1 percent on Tuesday morning.

"The market is likely to respond positively on the move with investors having a much clearer idea of HSBC's direction going forward," said Steven Leung, a sales director at UOB Kay Hian in Hong Kong.

The new strategy is not solely about cuts though, with the lender saying it will target growth in Asia by expanding its insurance business and its presence in China's Pearl River Delta region.

(Reporting By Lawrence White, additional reporting by Donny Kwok; Editing by Rachel Armstrong)