HSBC fell 1.15 per cent to $128 on news that it had lost out to Standard Chartered in a bid to buy Korea First Bank of South Korea.

China-related stocks - perceived by many to be more oversold than the leading Hong Kong stocks over the past week - edged up slightly, however, after falling early in the session.

'The initial sell-down had reached bargain levels and some recent good news had not been reflected because of the sell-down,' said a sales director at a mainland brokerage.

According to some brokers, overseas investors were buying China Life Insurance fairly aggressively, pushing its share price 2.97 per cent higher to $5.20. Ping An Insurance, which yesterday became the first mainland insurer to gain approval to invest overseas, rose 1.17 per cent to $12.95.

The H-share index finished up 34.9 points or 0.77 per cent at 4,547.93 while the red-chip index rose 0.06 per cent to 1,446 points.

The Hang Seng Index settled 43.47 points or 0.32 per cent weaker at 13,531.39, after bouncing off an intraday low of 13,435.43.

Turnover was firm at $18.81 billion, but well below last week's daily average of $23.73, indicating the selling pressure is easing somewhat. The Hang Seng Index has fallen 4.95 per cent or 706.03 points in the past five trading days.

Among the stocks that were seeing renewed buying interest after that fall was fashion retailer Esprit, which rose 1.57 per cent to $45.20 and Hong Kong and China Gas, which added 1.62 per cent to $15.65.

China Unicom was the top performer among the blue chips with a 3.57 per cent rise to $5.80. China Telecom gained 2.83 per cent to $2.725, and investors also continued to snap up China Netcom on expectations that a 20 per cent stake in PCCW which its parent is about to acquire will eventually be injected into the listed unit. The recently listed fixed-line operator jumped 4.18 per cent to $11.20, extending its gain in the past three days to 11.44 per cent.

Despite strong weekend sales, property stocks remained under pressure, as investors continued to worry that an outflow of funds from Hong Kong will put upward pressure on interest rates.

The three-month Hong Kong interbank offered rate rose three basis points to 0.71 per cent yesterday as the Hong Kong dollar weakened to $7.7947 against the US dollar from $7.7897 on Friday.

Hang Lung Properties fell 1.72 per cent to $11.40, Henderson Land dropped 1.33 per cent to $36.90 and Sun Hung Kai Properties lost 0.34 per cent to $71.50.

New World Development, which sold more than 800 units at its Hong Kong Island residential project Merton at the weekend, finished unchanged at $7.85.

'We are marginally overweight in the Hong Kong market ... [given] the continued recovery in the domestic economy. But I won't say Hong Kong [stocks] are cheap anymore,' said HSBC Asset Management chief investment officer for Asia Pacific equities Ayaz Ebrahim.

'In some particular sectors [such as the Macau-related stocks], the valuations seem ahead of themselves.'

Macau stocks saw some profit taking towards the end of last week following suggestions by casino magnate Stanley Ho Hung-sun that share prices were getting saturated. Reports at the weekend that Beijing had warned mainland officials not to gamble were seen as a yet another blow to the sector.

'The reality is starting to sink in, and if the mainland cadres - who have been a main driver of the Macau casino market - are also told to stay away, it could reduce the market by a lot,' said Francis Lun, a general manger at Fulbright Securities.

Emperor (China) dropped 15.74 per cent, Victory Group fell 9.28 per cent and A-Max gave up 6.25 per cent. Mr Ho's Shun Tak added 0.62 per cent, however, and Melco International closed unchanged.

Standard Chartered was suspended from Hong Kong trading pending a mid-afternoon announcement that it would pay US$3.3 billion for Korea First Bank, but its shares fell on the news in London. By midday they were trading 2.5 per cent lower after falling as much as 3.7 per cent at one point.

'Some investors are probably worried that Standard Chartered may have overpaid, but the market is also looking at the dilution effect from the share placement,' Mr Lun said.

The bank was last night trying to raise GBP1 billion ($14.61 billion) by issuing new shares amounting to 10 per cent of its existing share capital to pay for the acquisition.