BEIJING, Sept 23 (Reuters) - A typhoon was gathering strength in the South China Sea on Tuesday and heading directly for Hong Kong after killing three people in the northern Philippines.

The Philippine coastguard rescued 21 people from three cargo and fishing vessels that sank in rough waters as Typhoon Hagupit passed the northeast coast on Monday. In total, three people were killed and four were missing.

Hagupit, which means "lashing" in Filipino, was estimated to be about 420 km (260 miles) southeast of Hong Kong (near 20.0 degrees north 117.4 degrees east) at 8 a.m. (0000 GMT) and was forecast to move west or west-northwest at about 30 kph edging closer to the south China coast.

The Philippine National Disaster Coordinating Council said about 120 people had fled their homes in a northern mountain village due to fears of landslide as the weather bureau lowered typhoon alerts.

Some areas in the northern Philippines remained isolated due to floods and landslides and without power and telephone service.

Tropical Storm Watch (http://www.tropicalstormrisk.com/) labelled it a category 3 storm on a scale of five. It was not expected to make landfall in China until Wednesday.

In June, about 600 people were killed and about 15 billion pesos ($325 million) worth of property and farms were destroyed by a typhoon that hit the central Philippines. Seven cargo vessels and a ferry carrying 800 people also sank due to waves and strong winds.

In Hong Kong, strong winds are affecting high ground and winds are also picking up offshore.

"On its present track, local winds will strengthen further and there will be squally showers," the Hong Kong Observatory said.

Tropical storms in the region gather intensity from the warm ocean waters and frequently develop into typhoons that hit Taiwan, Japan, the Philippines and southern China during a season that lasts from early summer to late autumn. (Reporting by Manny Mogato and Nick Macfie; Editing by Sanjeev Miglani)

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