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Adela Ma

STRONG gains by the Hang Seng Index as a result of Japan's interest rate cut will make the market believe that a corresponding move in the United States is likely.

  In its bid to help the ailing banking sector and an economy in the throes of recession, the Japanese central bank reduced the discount rate by 0.5 percentage point.

  The last time it cut the discount rate was in April.

  At the time, it made a reduction to one per cent, from 1.75 per cent.

  This is the ninth cut it has made since June 1991.

  The US dollar surged through the 100-yen barrier for the first time since January.

  US Treasury Secretary Paul Rubin's pledge of co-operation from Washington with members of the Group of Seven industrialised nations in the currency market was well-received.

  This could mean the possibility of an interest rate cut by the US next month, of which traders have been talking.

  Now a US official's promise of concerted action to tame the yen can only be interpreted as a stronger sign.

  The index closed on Friday 114.22 points higher, at 9,393.21, a gain of 1.23 per cent, making it through the 9,300 resistance level for the week.

  Trading, however, focused on blue chips, leaving second and third liners untouched.

  The week began with a rather buoyant sentiment and a US holiday did not dull trading as expected.

  Kleinwort Benson sales head Nial Gooding said although the expectation of an interest rate cut in the US was lifting sentiment in a market with not many other incentives, it would not be able to push the market up in the long term.

  'It is interesting to note we are the only market in Asia that is up,' he said of the market on Monday.

  'We're being preferred because we are the least unattractive wallflower at the dance.

  'That gets you a dance, but it doesn't get you taken out.'   During mid-week what brokers called 'junk stocks' among H-shares stole the spotlight and made a rebound after heavy selling in previous weeks on reporting of weak interim results.

  'We don't have any investment in the States . . . so a lot of the big investors and speculators are picking up trashy H-shares,' said SHK Securities senior manager for institutional sales Kent Rossiter. 'If it's junky, it jumped.'   Bargain-hunting raised their prices substantially.

  Salomon Brothers also expected a rise of 20 per cent on the China Enterprises Index on the back of a strong Hang Sang Index in the fourth quarter.

  The investment bank forecast that the chemical sector among H-shares would have 'exceptionally good' results this year and the steel sector would fare 'exceptionally poorly'.

  It recommended the petrochemical sector for stock investment.

  In a way, futures traders tried to push the index down on Wednesday.

  Antony Burpee of Deutsche Morgan Grenfell said: 'We got hit by a futures programme.'   'We had a [strong] bond rally in the US and the market should have broken through 9,300 easily. But nobody treated it as significant.

  'People now have a good reason to buy the market, and they didn't get excited at all.'   Elton Cheung of Tai Fook Securities said most active traders were European and US houses.

  Traders believe for this week, the 9,500 level will be the testing ground for market sentiment.



Investors place hope on Federal Reserve