THE Hang Seng Index had a positive but unexciting week, rising 2.55 per cent in shallow turnover. The index ended higher on four days out of five, closing the week at 12,516.60, up 312.01 points. Turnover was an average $7 billion, little changed from the previous week and down from an average of over $10 billion at the end of 1996. With the exception of Friday, the week was characterised by caution. ImPac Asset Management analyst Kelvin Tang said: 'People are still cautious about the interest rate outlook and are looking for more data.' Questions about interest direction have created a cloud of uncertainty over the property sector. The gloom was compounded when Henderson Land chairman Lee Shau-kee said on Tuesday that the higher interest rates would lead to a 10 per cent fall in Hong Kong residential property prices. That view was supported by Bank of East Asia chairman David Li Kwok-po, who said his bank had seen a substantial slowdown in mortgage loan applications. Together with government measures to cool property speculation, the higher rates resulted in lower turnout at a number of apartment sales. At Sun Hung Kai Properties' East Point City, only 52 of 215 units available were sold. The weak turnout was in contrast to the long line of potential buyers at sales this winter. The list of the week's biggest losers was peppered with property companies, including Amoy Properties, Great Eagle, New World development and Sun Hung Kai. Banking stocks, however, made strong gains last week, bouncing back from losses suffered in March. Unlike property companies, well capitalised banks such as HSBC Holdings and Hang Seng Bank, actually benefitted from higher interest rates. Both institutions are extremely liquid, so are better equipped to endure higher interest rates. At the same time, they can make bigger profits on money they lend to other banks and non-bank clients. HSBC rose 4.25 per cent on the week and Hang Seng Bank rose more than 3.5 per cent. It was, however, China-related stocks that made the most striking advances. The Hang Seng China Enterprises Index, which tracks H shares of Chinese state-owned companies listed in Hong Kong, rose 9.55 per cent. Shanghai Haixing Shipping surged 36.05 per cent as the company's parent merged with two other major shippers, boosting its growth prospects. Northeast Electric and Jingwei Textile both rose more than 20 per cent. Last week saw H share companies start their reporting season. Even though the results were consistently poor, analysts believe the performance of H-share companies has bottomed out and will now start to improve. Red chips, meanwhile, were boosted after Shanghai Industrial, the trading arm of the Shanghai government, placed $4.7 billion worth of shares in order to buy a stake in a Shanghai highway from its parent company. The move pleased red-chip investors, who were afraid the Chinese Government was trying to limit asset injections by Chinese companies to their Hong Kong bases' affiliates.