Hong Kong stocks fell steeply yesterday as an early morning rally was smothered by fears over the property market. The Hang Seng Index shot higher at the open, taking its cue from a record-setting rally on Wall Street on Monday. The gains were quickly trimmed and the index dragged into negative territory on worries that the incoming SAR government will take a hard line on property speculation. The benchmark index closed at 14,439.71, down 215.42 points, or 1.47 per cent. Turnover remained strong at $20.91 billion, compared with $21.69 billion on Friday. Property stocks such as Henderson Land and Sun Hung Kai Properties led the index lower. Many believe that making housing more affordable will be the hallmark of Tung Chee-hwa's administration and that he will announce a property-related initiative soon after the handover. BZW analyst Adam Osborn said: 'The impression is that [the policy initiative] will happen sooner rather than later, possibly in July.' Hongkong Telecom tumbled 8.68 per cent to $17.35 after investors decided that the 5.5 per cent stake in the firm taken by China Telecom could not justify the 45 per cent rally seen over the past month. The Hong Kong listed shares of Telecom's parent, Cable & Wireless, surged 13.16 per cent to $60. Nava SC Securities salesman Geoff Galbraith said: 'It looks like Hongkong Telecom took a back seat on the deal. Cable & Wireless was the organiser.' Some players looked for the good in yesterday's blue-chip losses. Dharmala Securities research director Ben Kwong said: 'We need a correction to squeeze out the speculative bubbles.' Among the blue chips, only HSBC made serious gains. The bank continues to be boosted on buying interest from British fund managers looking to increase exposure to the finance sector. Other money was shifted into traditionally defensive stocks such as China Light & Power (CLP) and hotels. CLP was also helped by the placement of a covered call warrant by Credit Lyonnais. The hotel sector is expected to enjoy exceptionally good business around the handover. Red chips continued to see some selling, with Beijing Enterprises and Shanghai Industrial both falling. Jiangxi Copper H shares are not expected to shine when trading begins tomorrow. Despite the issue being more than 33 times subscribed, the stock's grey-market price was unchanged near its issue price of $2.55, brokers said.