HONG KONG share prices headed lower last week on dwindling volumes and mortgage-war fears. Brokers also said that with the uncertain interest rate outlook and a directionless Wall Street most investors stayed out of the market. Most interest centred on banking stocks punished over fears that the mortgage war would pare earnings. The Hang Seng Index fell 85.7 points over the week to 10,732.79. Average daily turnover was modest at $3.56 billion, down 0.85 per cent on a week earlier. Ian Carton, account executive at Merrill Lynch Asia Pacific, said: 'The market tends to rise on high volume and fall on low volume. At the moment the overseas institutions are being very quiet.' Brokers said many funds were looking elsewhere in the region for better returns. Samuel Ho, senior marketing manager at Seapower Securities, said: 'A lot of the funds are going to other Pacific markets like Taiwan, Japan, and Korea.' The week began well, with the market adding 91.49 points to 10,909.98 on Monday after a positive meeting between US Secretary of State Warren Christopher and his Chinese counterpart. Many saw this as a sign a Most Favoured Nation crisis would not develop this year. For the rest of the week, the market focused on local issues, particularly the mortgage battle, allowing the bears to lead the market lower. Banks have been lowering their mortgage rates for some time, but early in the week Hongkong Chinese Bank announced it would cut its mortgage rate to the prime rate for the first three years. This spread fears that other banks would follow. Abbott Lau, a salesman at Schroder Securities Asia, said: 'The move by Hongkong Chinese Bank has raised fears of a profit-margin squeeze across the whole sector.' The Hang Seng finance sub-index slid 1.73 per cent. Hang Seng Bank dropped 4.69 per cent, and Bank of East Asia shed 3.93 per cent. Smaller banks were hit harder, as they were seen as more reliant on mortgage lending. International Bank of Asia slid 7.84 per cent, and Wing Hang Bank lost 7.38 per cent. H shares were hit badly as investors again sold down the stocks after another dismal earnings season. The Hang Seng China Enterprise Index, which measures the 18 H shares, fell 2.32 per cent over the week. William Lo, head of China Research at Kleinwort Benson Securities, said: 'All of the results have been quite bad - but that was expected.' Worst hit was Chengdu Telecommunications Cable, which crashed 35.76 per cent after announcing a 1995 earnings fall of 79 per cent. Brokers saw the market likely to continue trading in low volumes until it gained a strong lead - most likely from Wall Street or bond yields.