* Police say rally reached 98,600 people at its peak
* China denounces illegal acts, says backs aim of universal suffrage
* Groups plan to protest in business district overnight (Adds quotes from organizers, voter turnout)
By James Pomfret and Clare Baldwin
HONG KONG, July 1 (Reuters) – Hundreds of thousands of pro-democracy protesters marched in Hong Kong on Tuesday, many calling for the city’s leader to be sacked, in what could turn out to be the biggest challenge to Chinese Communist Party rule in more than a decade.
Hong Kong Chief Executive Leung Chun-ying said his government would do its “utmost” to move towards universal suffrage and stressed the need for stability after nearly 800,000 people voted for full democracy in an unofficial referendum last month.
Organizers put the number of protesters at more than 510,000, emphasizing this was a conservative estimate. Police said some 98,600 had joined the protest at its peak.
Johnson Yeung, convenor of the Civil Human Rights Front, one of the organizers of the march, said activists would take to the streets to occupy the business district if China does not respond to demands for a direct election in 2017.
Scores of demonstrators dispersed late on Tuesday, but thousands remained after midnight. Some student groups, including Scholarism and the Hong Kong Federation of Students, prepared to hunker down for the night.
“The Hong Kong government is now controlled by the Chinese government,” said Daniel Cheng, 24, a recent graduate who now works as a building surveyor. “My mom said not to be arrested, to be careful. I will try, but I think I should do what I can for Hong Kong, my colleagues, my classmates, my friends.”
A security blanket was thrown across the heart of the business district, home to global banks like HSBC and Standard Chartered, as thousands of protesters lingered. Some 200 police stood guard outside the offices of Hong Kong’s leader nearby.
Tempers flared in Hong Kong’s heat, fierce humidity and heavy downpours as thousands found themselves trapped near the start of the march in the shopping hub of Causeway Bay even as the head of the march reached the Central business district.
Police dragged away several protesters as crowds pushed against barricades. Officers later criticized organizers of the usually peaceful annual procession, warning that legal action may follow after they ignored instructions to speed up.
Activists from the League of Social Democrats burned a copy of a “white paper” released by Beijing last month that reasserted its authority over the former British colony. The group also burned a portrait of Leung.
“This could be the last chance to make our voices heard,” said Lam Sui-pan, a 22-year-old human rights volunteer, at the end of the march. A veteran of the last five processions, he said he had never seen such a big turnout.
Tension is running high after the referendum. Roads were closed off around Victoria Park, where the rally started. Surrounded by police, demonstrators marched to Central, some shouting, “Overthrow the Chinese Communist Party.” People were still leaving the park as the first protesters reached Central after four hours’ marching.
Anson Chan, Hong Kong’s former top civil servant and a key supporter of the unofficial referendum, said the vote was clear.
“They (voters) are not taken in by recent suggestions that we should pocket whatever we are offered in the hope that more would come later,” she said. “This is just rubbish.”
Organizers of the annual July 1 rally, marking the day the territory returned to China in 1997, were expecting the largest turnout since 2003, when half a million people demonstrated against proposed anti-subversion laws that were later scrapped.
Tung Chee-hwa, the city’s leader at the time, stepped down in March 2005, nearly two years before completing his second five-year term.
“I think in view of the vote of almost 800,000 people in favor of democracy, real democracy, not the type of democracy Beijing is suggesting, that today is probably going to be one of the most pivotal moments in the history of the democratic movement in Hong Kong,” said lawyer Sean Leonard, from the think tank HKU International Institute of Financial Law. “It’s about time Beijing woke up.”
The demonstrators are demanding greater democracy in elections for the city’s leader, or chief executive, in 2017. They want nominations to be open to everyone. China’s leaders want to ensure only pro-Beijing candidates are on the ballot.
Hong Kong returned to China with wide-ranging autonomy under the formula of “one country, two systems”, allowing such protests to take place. But China bristles at open dissent, especially over sensitive matters such as demands for universal suffrage and the annual June 4 vigil in Hong Kong to mark the crackdown on pro-democracy protesters in Beijing in 1989.
Chinese Vice President Li Yuanchao urged a visiting Hong Kong youth group on Tuesday to make sure young people “staunchly uphold “one country, two systems,” China’s Xinhua news agency reported. Beijing’s Liaison Office in Hong Kong went further.
“We are firmly against the radical and illegal activities launched by very few people, because we all have responsibilities to defend the bottom line of law which Hong Kong people cherish,” office head Zhang Xiaoming said in apparent reference to the referendum and planned protests.
“Central government firmly supports the universal suffrage in Hong Kong, and its sincerity and determination is unswerving. This kind of sincerity and determination won’t have any change or shake because of the so-called referendum or the scale of the march.”
Activists in neighboring Macau were likely to watch the Hong Kong rally closely. A bill there providing lavish perks for senior civil servants was withdrawn days after the largest protest since China resumed control over the former Portuguese colony in 1999.
An activist from self-ruled Taiwan, Chen Wei-ting, who was denied entry to Hong Kong to take part in the rally, sent a message via video link.
“There is no way we can get to Hong Kong to stand with you on the scene, but our hearts are with yours tonight. I believe the democratic movements of Taiwan and Hong Kong will blossom in the forseeable future,” Chen said.
TRYING ITS BEST Speaking at a flag-raising ceremony to mark the 17th anniversary of Hong Kong’s return to China, Chief Executive Leung said the government was trying its best.
“The (special administrative region) government and I will do our utmost to forge a consensus in the community and work together towards the goal of implementing universal suffrage for the chief executive election on schedule and in accordance with the law,” Leung said at Golden Bauhinia Square, where ceremonies for the handover of Hong Kong were held in 1997.
Many Hong Kong people are concerned that Beijing is playing an increasing role in the city’s civil and political life since the handover.
Occupy Central with Love and Peace, the group behind the unofficial poll, has threatened to lock down Central, home to some of Asia’s biggest companies, as part of its campaign.
It has ruled out taking action to blockade Central on Tuesday, saying it “wouldn’t be the right moment”. (Additional reporting by Grace Li, Twinnie Siu,; Emily Chung, Nikki Sun, Eiffy Luo, Adam Rose and Clare Jim in Hong Kong and Ben Blanchard in Beijing; Writing by Anne Marie Roantree; Editing by Greg Torode and Nick Macfie and Larry King)