STOCKS yesterday suffered their biggest percentage drop since December 1992 as fears that interest rates would not be cut further led to an avalanche of selling. Sharply lower unemployment figures released in the United States last Friday signalled the Federal Reserve was unlikely to cut rates again soon and led to a dumping of equities around the world. Hong Kong took heavy losses as it has one of the most liquid markets in Asia and is also among the most interest rate sensitive. Escalating tensions between China and Taiwan worsened the situation, making many international investors wary of Hong Kong shares. The Hang Seng Index closed 820.34 points lower at 10,397.45, a loss of 7.31 per cent. At one stage it was down 908.97 points. Turnover was heavy at $9.59 billion, up from the revised $3.91 billion for Friday. Volume was improved, with 2.85 billion shares changing hands. ING Barings sales director James Osborn said: 'All the news is bad news at the moment, whether you are talking about China, Taiwan, bonds, or Wall Street. 'It got a little bit ugly and you did get some panic selling going into lunch.' Stocks were lower across the board with banks, properties, utilities, second liners, H shares, and warrants all being sold down. The collapse stemmed from Friday's news the number of jobs in the US rose an unexpected 705,000 last month, twice the amount analysts were expecting. Investors were hoping job growth would be less dramatic, giving the Federal Open Market Committee an excuse to cut interest rates when it meets on March 26. A rate cut is now almost out of the question. Bond yields soared to 6.8 per cent on the news and the Dow Jones industrial average dropped 171.24 points to 5,470.45 on Friday. Futures traders played a large part in exacerbating the fall in the local market. Schroder Securities Asia salesman Abbott Lau said: 'In the last year a lot of derivative teams have been set up and that has created a lot of volatility. 'Once the market turns they don't take a view - they just move with the market.' Brokers said the US announcement that it would move some warships closer to Taiwan also made investors more cautious. Tai Fook Securities executive director Lennon Chan said: 'Tensions are getting higher. People are worried that pushing the wrong button will lead to a disaster.' The index began the day with a fall, dropping from the previous close of 11,217.79 to 10,700 before finding some support. This was short-lived as the index retreated again to reach the day's low of 10,308.82 just before 12.30 pm. It recovered marginally to close for lunch at 10,315.25, an intra-day loss of 902.54 points. The afternoon saw a mild rebound but trading was locked in a narrow range. All 33 Hang Seng Index stocks fell. Interest rate sensitive property and banking stocks were sold down the most. The Hang Seng property sub-index slid 1,623.37 points or 8 per cent to 18,668.32. Sun Hung Kai Properties lost $4.75 to $64.75, as did Henderson Land Development to $51.75. Banks fared no better as the Hang Seng finance sub-index lost 6.17 per cent to 9,962.41 points. HSBC led all stocks in net loss, sliding $8.50 to $115.50. Hang Seng Bank dropped $3.50 to $72.75. Some of the smaller banks also fell heavily. Wing Hang Bank slipped $3.90 or 12.42 per cent to $27.50, and Wing Lung Bank slid $3.60 or 6.7 per cent to $49.90. Commercial and industrial stocks were down sharply with the Hang Seng sub-index losing 7.9 per cent to 7,801.43 points. Swire Pacific fell $5.25 to $62.75 and Hutchison Whampoa dropped $3.80 to $45.60. Brokers had expected utilities to provide a safe haven but this was not to be. The Hang Seng utilities sub-index slid 6.91 per cent to 10,151.11 points. China Light & Power fell $2.40 to $33.90 and Hongkong Electric lost $1.40 to $25.20. Second and third line stocks also plunged but many saw only light trading. Sun Hung Kai Investment Services institutional sales manager Kent Rossiter said: 'I can name a 100 stocks that came off a lot.' Looking ahead, most brokers see the market having more downside but say it will depend on Wall Street. Mr Lau said: 'For this week it will probably drift down and it may test 10,000. You don't see any happy faces around.'