A SELL-OFF of stocks marked the start of the week in Hong Kong amid fears that Wall Street was on the verge of collapsing. But when a crash was not forthcoming and Federal Reserve chairman Alan Greenspan discounted fears of an interest rate rise, the territory staged some of the strongest gains in months on Thursday and Friday. Despite massive volatility, the Hang Seng Index closed up more than 40 points on the week. The market began on Monday optimistically after US producer price figures released the previous Friday pointed to tame inflation. The Hang Seng gained almost 60 points before selling by foreign funds pulled down July futures and then the cash market in the late session. Wall Street plunged almost 3 per cent on Monday due to disappointing corporate news. Hong Kong responded on Tuesday by falling 1.6 per cent, with property shares suffering the brunt of the selling. However, market players questioned why US corporate results mattered to Hong Kong, and whether it was time for the Hang Seng to seek an upward direction based on improving business conditions at home and in China. One bright spot on Tuesday was China-related stocks, which gained on statements from the Bank of China chairman that an interest rate cut was in the offing. Following a day of relative stability in US markets, the Hang Seng bravely attempted to rebound on Wednesday. The index surged 100 points at the opening, but closed down 18 points on late-session profit taking. Adding to the uncertainty were rumours that China's paramount leader Deng Xiaoping was again on his death bed. That rumour, plus sentiment that H-shares had overstayed their welcome after outpacing the market for more than a week, sent China-related stocks tumbling. Peter Perkins, strategist at Daiwa Securities (Asia), said despite the optimism, the easing of interest rates in China was likely to have less positive impact than people hope for. Shanghai Petrochemical lost more than 9 per cent of its value on Wednesday, in part because it planned to issue $100 million in new shares at discount prices. After Wednesday's close, it was announced First Pacific and Henderson Investment would be admitted to the blue-chip Hang Seng Index - news that positively affected these stocks for the rest of the week. Thursday saw the market stage the rebound everybody was waiting for. The Hang Seng Index surged above the 10,700-point level, and stayed there for the rest of the day. The property sector set the pace, with investors buying on low prices due to the recent sell-off, stable US stock and bond prices, and anticipation of rising property prices. Shanghai Petrochemical jumped 10 per cent after postponing its stock sale. On Friday, the index surged 1.25 per cent after Mr Greenspan hinted US interest rates would not rise, at least until mid-August.
