The move was anticipated by investors. The share market rallied in heavy trading ahead of the Hong Kong Association of Banks' (HKAB's) decision to lower deposit rates, and money market volumes hit a 12-month high after Thursday's cut in the wholesale rate. The HKAB's move, which cuts the retail savings rate to 3.75 per cent from Monday, prompted most commercial banks to reduce their prime lending rate by the same margin, from 8.75 per cent to 8.5 per cent, also effective on Monday. Association spokeman Lo Chung-hing, deputy-general manager of the Bank of China, said:'The rate cut is good news for flat-buyers and will not fuel inflation.' The move sent the territory money market near record trading highs. Turnover of Exchange Fund bills and notes yesterday reached $32.2 billion, a level unseen since the Mexican peso crisis in January, 1995. Average recent daily turnover has been $12 billion to $15 billion. Despite the record turnover, bankers said there was virtually no change in yield at the end of the day, implying active buying and selling of the papers. The seven-year note ended at 6.19 per cent, up from 6.16 per cent, the five-year note ended at 5.87 per cent, just up from 5.86 per cent. There was some yield curve steepening, to match the reaction in the United States to the cut in rates by the Federal Reserve. Bankers said the rush of activity and minimal change suggested that some corporates and other borrowers had decided to change their positions in the wake of the rate cut. They were believed to be locking in funding at the lower interest rate, having decided that the latest cut left limited scope for further falls. In those deals where corporates changed their debt positions, banks would use the Exchange Fund bills and notes to hedge their own positions, one banker said. Continuing positive sentiment about the latest round of interest rate cuts and the chance of further cuts later in the year again boosted the stock market. The Hang Seng Index climbed 106.6 points to 11,469.4, its highest level in almost two years. Turnover was impressive at $9.57 billion as foreign funds continued to pour into the market. The most interest-rate sensitive stocks, such as banks and properties, took a breather on confirmation of the interest rate cut, but are expected to resume their rally next week.