Hongkong Telecom shed 55 cents to close at $14.55 with a trading volume of $3.86 billion.

Citic gained 35 cents to $28.50 on reports that the group was shoring its cash position to focus on infrastructure projects on the mainland, a move that will produce earnings in the long run. Citic amassed $6.4 billion in just over three months and its determination to expand into lucrative infrastructure projects could not be more clear, analysts said.

There was notable foreign buying including hot money from the United States and Europe.

Sassoon Securities dealing manager Simon Tam said big US houses like Morgan Stanley were unloading large volumes of shares.

'It's a mixed picture really, though we don't know whether it's Morgan Stanley selling or doing it on behalf of its clients,' he said.

He said the US house had been amassing stocks when the index was at the 9,000 level and would be making very handsome gains now. The Citic disposal of 253 million of Hongkong Telecom shares muddied the market in initial trading.

Courage returned about 11am and hit a high of 10,614.78.

A 68 million share placement by Chinese Estates Holdings acted as a market dampener.

The property developer said chairman Joseph Lau Luen-hung placed 68 million old shares with institutions to realise about $425 million.

The transaction, through Peregrine Capital, represented about 4 per cent of the company's issued share capital.

The share price was pitched at $6.25, or 5 cents lower than yesterday's closing price.

A trader said the market was troubled by rumours of share placements from property developers and conglomerates cashing in on high trading levels unseen for months. Renewed rumours about share placements surrounded Gordon Wu Ying-sheung's Hopewell Holdings, as well as Hutchison and New World Development.

Traders said the rumour about New World was very strong at one point.

Morgan Stanley was said to be carrying out the placement, but this was denied.

One broker suspected that the New World share placement was withheld because of the Chinese Estates placement.

Mr Tam said New World would be tapping a different market if it did go through with a placement and big funds, in particular, were interested in the group.

Traders said they heard different versions about Hopewell placing shares, though one Hopewell official insisted this was highly unlikely.

The London price of HSBC Holdings jumped on the issue of warrants and a trader said at one point it went up 20 pence.

Locally, HSBC gained $1 and Sun Hung Kai also gained 15 cents on news of a warrant issue.

Traders noticed that warrants were coming on stream and heard that Dao Heng Bank would also be issuing warrants.

The index plunged 80 points before the close of the morning session and trading was trapped in narrow ranges throughout the afternoon.

The utilities sub-index shed the most to close at 10,556.56, a loss of 220.04 points, or 2.04 per cent. Traders said this could only reflect profit taking.

The Dow was on an upward surge and brokers said that was one reason why the Hong Kong market saw support. Laggards among second liners made the most gains.

China Everbright Technology jumped 0.02 cents to 9.8 cents - a gain of 25.64 per cent. First Shanghai dropped as much as 13 cents to 62 cents, after making substantial gains the day before.

Brokers said smaller stocks were prone to roller-coaster fluctuations because of speculation and profit taking.

Another keenly traded product from the rumour mill yesterday was that Dairy Farm was interested in a stake in Vitasoy International Holdings, but both companies refused to comment.

Vitasoy shed 7.5 cents to $2.825, continuing its plunge since resumption of trading on Tuesday.

Vitasoy has suffered the recall of millions of its paper pack drink products.