A RALLY in bonds on Friday in North America will provide support for Hong Kong equities today. The 30-year long bond yield fell to near year-lows at 6.5 per cent as bonds made their biggest single-day gains in more than five months. If the decline in the bond yield is confirmed and continues in the week, more challenges on the Hang Seng Index's 9,800 points are likely, with a new 12-month high also in sight. Although many strategists in Hong Kong are looking for downside in the index, declining bond yields across the Pacific are going to make local stocks resilient to big falls. Some strategists are looking for weakness in blue-chip companies because of the poor corporate earnings operating environment in the second half, the poor state of the property market and the relatively high valuation in the Hang Seng Index price on Friday. Last week, the index ended trading at 9,646.34 points, up 1.56 per cent on the previous week, almost five per cent on the month and 17.7 per cent on the year-to-date. On current-year earnings, the price-earnings ratio is a demanding 13.5 times and it is on 11.9 times next year's prospective earnings. This allows little room for upside movement on the Hang Seng Index unless the market gets a rerating. There are a number of big investment banks issuing reports indicating they are not bears on the change-over in 1997. In fact, the initial change in the early period after the handover could be good for stock market and capital market activity because there is expected to be a rush of liquidity from the mainland. For long-term investors with little concern for volatility, this could be a good time to buy on the two or three-year view. For investors with a shorter horizon or who have a preoccupation with timing, this ought to be a time for caution. Derivative trading appears to indicate a significant number of investors have written off any chance of the traditional end-of-year, Chinese New Year rally making its appearance in the coming months. With property dead in the water there is little to drive the market. There could be some shocks to sentiment on the way in the December 31 reporting season in March and April next year. For many companies in retail and property, and those reliant on domestic bank revenues, the second half of this year looks to be a real shocker. The big blue chips, after 18 months of tough trading conditions, are running out of tricks to maintain earnings growth. Some profit falls are on the cards. An upturn in domestic property is not expected until the end of the first quarter next year at the earliest. Prospects for corporate earnings are not expected to improve until the second half of next year at the earliest. Given this view of fundamentals, index trading above 9,800 ought to be a profit-taking opportunity for investors cautious about the first half of next year. On the downside, the index can be expected to push through 9,400 and 9,200 by the end of the first quarter of next year. In the diary, two key results are Sino Land's finals today and finals from Sun Hung Kai Properties on Thursday. In the United States, the Commerce Department reports personal income and spending for August. In July, income rose 0.7 per cent and spending rose 0.2 per cent. In addition, the National Association of Purchasing Management releases its September purchasing managers index. In August, it stood at 46.9 points. These figures will be critical in determining trading in bonds and sentiment among bond investors. In Bloomberg reports on Friday, there was a feeling suggesting the rally in bonds on Friday might have been a short-term phenomenon and the rally seen last week was about to ebb. On Wednesday, Commerce issues August leading indicators. In July, the index fell 0.2 per cent. The same day, factory orders for August are out. Orders fell 1.3 per cent in July. The most important data on the agenda in the week ahead comes on Friday with the Labour Department issuing unemployment data for last month. In August, the unemployment rate slipped 5.6 per cent while the number of non-payroll jobs climbed 249,000.