THE Hang Seng Index is expected to be jittery in trading today due to worries over interest rates and following family reports of paramount leader Deng Xiaoping's deteriorating health. Sentiment will remain weak with Friday's fall on Wall Street and a drop in Hong Kong stocks in London adding to the gloom. The Hang Seng Index fell sharply in Hong Kong on Friday to end at 7,278.1, reducing its gains made earlier in the week to 25.76 points. Sharp falls in the past two trading days were triggered mainly by renewed worries over the failing health of Mr Deng. In an article in the New York Times last week, Mr Deng's daughter, Deng Rong, admitted that the leader's health had taken a turn for the worse. Trading was thin, with average daily turnover totalling about $3.1 billion, down from the previous week's $4.13 billion. Early in the week the market rebounded strongly on three days of investor bargain-hunting. The index gained 251.9 points on Monday to close at 7,504.24 on follow-up technical corrections, followed by gains of 102.27 points on Tuesday and 23.69 points on Wednesday. But renewed talk of Mr Deng's failing health saw the market weaken, with the Hang Seng Index shedding 208.2 points on Thursday and a further 143.9 points on Friday. Most of the blue-chip stocks fell in the week's mixed trading. To add to investor woes, Hong Kong stocks in London fell on Friday. The stocks generally tracked a decline in the US markets, arising from worries about a rise in interest rates. US concerns have been fuelled by a Federal Reserve Board report showing economic expansion 'remained vibrant' and that price and wage pressures appeared to be rising. It is widely expected that the Fed will increase interest rates at the end of the month. This is likely to lead to another rise in Hong Kong because the Hong Kong dollar is pegged to the US dollar. GT Capital Management chairman and chief economist John Greenwood said he expected the Fed to respond to the strong growth early this year by raising the Fed funds rate to six to 6.5 per cent. Fears about an interest rate increase and concerns about the prospects of the property market will add to growing pessimism about the prospects for Wednesday's government land auction. Analysts are warning that two of the plots on sale could be withdrawn because of market uncertainties. Brokers said they expected volumes to remain thin over the week as the territory winds down for the Lunar New Year. Baring Securities Hong Kong research director Peter Rice said continued speculation about the health of Mr Deng and concerns over interest rates would dog trading. 'The way sentiment is, no one is going to buy in a week when Deng's health is increasingly uncertain and we are looking at an interest rate increase,' he said. HG Asia group head of research Stephen Brown believes the market will hover in the 7,200-7,500 range. 'This market is starting to offer attractive buying opportunities. 'We remain optimistic in the long term.' Other brokers said the market was being 'remarkably resilient' to bears attempting to test the 7,000-point barrier, the market level in mid-1993. Tai Fook Securities director Lennon Chan believes a successful conclusion to the Sino-US talks on intellectual property rights could see the market rebound to around 7,500. According to Yamaichi International, at that level the market is on a prospective price-earnings ratio of 9.5 times 1995 earnings and the dividend yield is about 4.4 per cent. A spokesman said: 'A further three per cent downgrade in 1995 earnings forecasts would still only result in the price-earnings ratio climbing to 9.8 times. The downside is limited.' Morgan Grenfell director Andrew Mathers said current levels were beginning to attract European buyers. 'They have been looking at the market very seriously. We might see some serious buying once the interest rate rises are out of the way,' he said.