Market observers also hinted that European investment bank UBS was under pressure to cut 30 per cent of its Hong Kong staff to minimise operating costs. The bank employs more than 2,000 people in the city.

Morgan Stanley will carry out a second round of layoffs today, with its investment banking unit likely to be the worst hit, the source said. A source inside the unit said sackings across all levels began yesterday.

Some secretaries had been told their contracts would not be renewed when they expired.

'The whole office turned silent and chilly,' the source said. 'I am lucky today because I did not receive notification, but how about tomorrow? I am so scared,' he said, adding that several colleagues had been fired.

Other sources said more cuts in the investment banking division were likely.

One Morgan Stanley executive said employees who filled vice-president or associate roles who had been with the company for about 6 to 10 years were the main targets.

Of the situation at Citigroup, one employee said: 'There is a lot of fear ... People aren't thinking about whether it is worth setting up a meeting with a client next month. It's more like: is it even worth setting one up next week?'

Goldman Sachs and Credit Suisse also sacked at least 110 Hong Kong employees this month. Citigroup said this week it planned to cut 52,000 jobs worldwide.

HSBC fired 450 workers on Monday and the Bank of China in Hong Kong has introduced a voluntary redundancy scheme.