Margin financing funds offered by some brokerages were already fully drawn last Friday - the first day of Air China's public offer, while queues of retail investors were seen lining up for the share subscription forms of the Link Reit yesterday.

With so much liquidity being readied for the IPOs, there was less available for general trade than in recent weeks.

'The market will be quiet until the funds locked up by the Link Reit are refunded,' one local broker said.

The Hang Seng Index rose 45.02 points, or 0.32 per cent, to 14,256.86, while the H-share index gained 23.87 points, or 0.49 per cent, to 4,920.53.

Morgan Stanley analysts, however, project the Hang Seng Index to hit 13,467 in one year - 5.5 per cent below yesterday's closing - based on their individual stock price targets.

'Index heavyweights HSBC, Hutchison Whampoa, Sun Hung Kai Properties and Cheung Kong are all close to our price targets, with significant revisions unlikely, while we believe that Hang Seng Bank, Bank of China (Hong Kong) and China Mobile have significant downside. Stocks with much upside potential are generally small,' analysts Rob Hart, Angus Chan and Tony Tsang wrote in a report.

Property plays succumbed to mild profit taking yesterday, despite healthy weekend property sales and lower inventories.

Fund managers say that 107 new units were sold last weekend, up 45 per cent from the previous weekend. Recently released property inventory numbers show a month-on-month fall of 4.6 per cent last month to 9,353 units due to a slow-down in new launches.

Sun Hung Kai Properties shed 0.63 per cent to $78.25 while Hang Lung Properties fell 2.9 per cent to $11.70.

Cheung Kong, however, rose 0.67 per cent to $74.75. The developer said yesterday it had bought Kowloon Hotel for $1.93 billion. Reports say Cheung Kong outbid seven other consortiums to purchase Fortune Villa in Kowloon Tong for $242 million.

Hutchison gained 0.72 per cent to $69.75 after its 3G mobile-telephone operation in Italy, H3G Italia, won a ruling from an arbitration panel compelling minority shareholder Cirtel to provide Euro373.2 million ($3.9 billion) in financing for the construction of the local 3G network. However, H3G will have to repay the loan.

Semiconductor stocks rallied yesterday on reports that the mainland government will announce more tax and funding incentives to local chipmakers next year to enhance their international competitiveness.

The sector was also boosted by news that Intel had revised up its earnings guidance and projected fourth quarter sales growth at 11 per cent, above the earlier target of 8 per cent.

Semiconductor Manufacturing International Corp rose 1.94 per cent to $1.04, CSMC Technologies gained 1.82 per cent to 56 cents and China Resources Logic surged 3.37 per cent to 92 cents.

Mengniu Dairy fell 2.44 per cent to $6 as some investors eyed the potential dilution risk of a batch of outstanding convertible bonds.

Private-equity investors with US$35 million worth of convertible instruments may exercise the conversion of up to 30 per cent of the instruments this week. This would increase total number of shares outstanding by about 110 million. Conversion of the remaining 70 per cent may be exercised in June next year, according to a fund manager.

Diesel-engine manufacturer Weichai Power rose 0.26 per cent to $19.50, extending a gain of 7.46 per cent last Friday, on reports that China's transport department is proposing to reduce highway tariffs for heavy trucks.

Johnson Electric shed 2.65 per cent to $7.35 after the company management indicated a slower revenue outlook.

On Friday, the company announced first-half results to September that were in line with market expectations.

'[However], management issued guidance forecasting just 10 to 11 per cent revenue growth for the full year, against 13.4 per cent for the first half. This implied a slowdown in the company's growth rate for the second half,' another fund manager said.

China Resources Enterprise gained 0.43 per cent to $11.55 after announcing it would buy 35 per cent of China Resources Vanguard and 11.5 per cent of Suguo Supermarket from its parent for $660 million.

The company will pay for the purchase by issuing 57.97 million new shares at $11.39 each, a discount of about 1 per cent to its Friday close.