Index bounces back after early plunge

CHINA'S denials of secret talks with Britain prompted a plunge of nearly 70 points by the Hang Seng Index early yesterday, but a dramatic mid-morning recovery ensured it closed 16.18 points higher for its seventh rise in a row.

Trade was described as ''very hectic'' by one dealer, and the day's turnover of $4.29 billion was the highest since November 19, the last day of sharp price movements triggered by the latest Sino-British row.

The market appeared to be dominated by traders and institutions. The index closed at 6,065.62, its rise having been led by property stocks.

Much of the day's trade appeared related to the futures market, which was the arena for a fight by big players, opening up opportunities for easy arbitrage profits for traders.

Big players dominated the equities market after the first 15 minutes, when many small investors sold stocks after Beijing denied weekend rumours of talks with London on Governor Chris Patten's democracy proposals.

The denial, which also took its toll on Hongkong stocks quoted in London overnight, knocked 67.31 points off the Hang Seng Index in 15 minutes.

It crashed back through 6,000 to 5,982.13 before strong buying started a sharp rally.

''Some institutions are underweight in Hongkong at the moment and when they saw the sentiment improving a bit they thought they better pick up some stock,'' said Mr K.S. Ng, assistant director at Barclays de Zoete Wedd Securities.

The rise, fuelled by bargain-hunting and traders profiting from the 80-point difference between the index and the February index futures contract, continued strongly for 30 minutes. The morning losses were more than recovered, and the index stabilised around 6,070 at 11.30 am.

But the February futures contract continued to rise, with dealers saying some big players were competing against each other. With the contract expiring next Thursday there were numerous arbitrage opportunities.

By midday, equities were rising again, and they reached 6,117.15 at the lunch close.

However both futures and equities slid back sharply in the afternoon to levels described as ''more reasonable'' by one dealer, the fall in equities stabilising before the market close and the index staying above the 6,000 level.

The February index contract closed at 6,088, with volume for all contracts at 11,164, easily the year's highest.

Property stocks recorded most of the big gains, with SHK Properties the best performing stock in the index, rising 75 cents or 2.5 per cent to $30.75.

Cheung Kong also rose strongly, putting on 40 cents or 1.9 per cent to $21.40. Dealers said both shares had failed to fully share in the index's 191.29-point rise on Monday.

TVB was also a strong performer, rising 30 cents or 2.2 per cent to $14.

Henderson Land's share price was depressed by rumours, apparently untrue, of a placement. Henderson Land fell 20 cents to $17.20.

HSBC Holdings had the day's highest turnover of $261.7 million, the stock closing unchanged at $63 despite some selling pressure in the early afternoon.

Great Wall Electronic had the day's biggest gain in very strong trade, rising 11 cents or 6.7 per cent to $1.75 on press comment. Turnover was $127.9 million, the day's seventh highest, much of it in large blocks at about $1.73.

Great Wall reported that companies linked to chairman Chiang Chi-kee and another director had increased their holdings by 4.19 per cent or 30 million shares.

Tack Hsin, which traded for the first time last Friday, fell for the second day in a row, the shares closing down 10 cents or seven per cent at $1.33.