VOLATILE trading with fragile sentiment prone to dramatic shifts will dominate trading today and during the week. The stock market has a lot to absorb in the next 48 hours as far as news and developments are concerned. Yesterday's breakthrough in Sino-United States trade talks will come as a welcome relief from the impasse that had been building up over weeks. This good news and further rises on the US Wall Street Dow Jones Industrial Average will be set against the shocking news of the apparent bankruptcy of Barings Brothers, also at the end of last week. A dealer said yesterday: 'Expect a sell-off on Monday in Hong Kong and around the region.' Currency market sources said that in the wake of the Mexican peso crisis, investors would re-appraise their offshore risks in all capital markets. Besides, large institutions will sit on their hands until they see the HSBC Holdings results for last year to December 31. Caution is probably going to be the guiding principle behind trading. The Hang Seng Index will open lower after the 56-point sell-off on the Hang Seng London Reference on Friday night to 8,162. Profit-takers stepped in during London trading after the index rallied 242.54 points to 8,218.95 points in the day in Hong Kong. Euphoria at Wall Street's Dow Jones Industrial Average breaking through the 4,000 mark buoyed Hong Kong sentiment. Besides, the confirmation of Hang Seng Bank's decision to relax lending restrictions on luxury apartments helped market sentiment, too. HSBC said that it was considering a similar change in its policy on mortgage restrictions. In New York trading, the Dow Jones industrial average continued to gain, closing at a record 4,011.74, up 8.41 points. Only the most reckless of brokerages will not be doing a thorough audit of risk profiles in stocks, bonds and derivatives. Some will even put further risk-taking in derivative trading on hold until the audit has been complete and directors are sure that another Barings disaster is not lurking on one of their trading desks. At the end of last week, the Bank of England in Britain confirmed that it was arranging a rescue of Baring Brothers after it was revealed that GBP400 million (about HK$5 billion) of derivative losses had been made by the group in Singapore. This news is expected to send a shock wave of caution through investment communities and investment bankers around the world. 'Of all the brokerages one would never have expected this to happen to Barings,' a senior director at a local investment bank said yesterday. On Tuesday, economists will be looking closely at the Hong Kong January merchandise trade figures. Hong Kong's trade deficit is beginning to worry economists in the territory. Financial Secretary Sir Hamish Macleod will present his last Budget speech this week. The event is not expected to yield many surprises. On Tuesday, consumer confidence index numbers from the US National Association of Realtors will be watched closely for evidence of a further slowdown in the economy, boosting prospects for equities. Since February 6 the Hang Seng Index has been trading in a tightening trading range of 7,900 to 8,100, provoking straddle trading in index options in the belief this trend is unsustainable and a major shift in sentiment is due, up or down. Straddle traders may have got their wish.