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SCMP Reporter

Pressure on the Hong Kong dollar and heavy profit-taking sent stocks into a tailspin yesterday, with the benchmark Hang Seng Index shedding more than 400 points.

 The blue-chip index dropped 2.43 per cent to 16,096.88, as the Monetary Authority was said to have intervened in the foreign-exchange market in support of the local currency.

 Selling pressure continued in London trading with HSBC shares declining more than 7 per cent at one stage to GBP21.73 and dragging the Hang Seng London Reference Index down to close 525.39 points lower at 15,571.49.

 HSBC's drop contributed to a steep slide in the FTSE-100 Index, which was 125.5 points lower at 4,865.8 points at the close.

 New York stocks were also sharply down in early trading, as government bonds dropped in response to a weakening US dollar against the German mark. The Dow Jones Industrial Average was 75.72 points lower at 7,866.31 at noon.

 South China Brokerage vice-chairman Howard Gorges said: 'There is a bit of weakness in the Hong Kong dollar, but not much. Overnight [interest] rates are up. It seems to be a bit of an excuse [for a sell-off].'  Brokers said there was also downward pressure from investors trimming positions ahead of the three-day, holiday weekend.

 There was little concern among brokers that the Hong Kong dollar could be seriously threatened by speculative raids mounted by international hedge funds.

 Prudential Portfolio Management's Andrew Look said: 'The peg is not going to go until there is an organic move out of the Hong Kong dollar into the US dollar . . . Until Mom and Pop in Yau Ma Tei start switching out.'  Brokers also said that it was difficult for funds to take positions against the local currency.

 ABN Amro Hoare Govett Asia head of Hong Kong research Anne Gardini said: 'You need to short and go to the banks . . . these people are not going to play along.'  Yesterday's fall, the biggest in more than two months, took the market's losses over the week to 3.3 per cent. It was the first decline over a full trading week since the handover.

 Since January, the lead index has risen by almost a fifth, registering a series of record closes.

 Nikko Research Centre's Steven Thompson said: 'When London came in, the monetary authority jacked up rates. They are blaming it on London . . . it [the selling] has been across the board. Everything has been hit.'  All four Hang Seng sub-indices slipped, with properties leading the fall with a decline of 3.15 per cent.

 H shares, which have posted strong rises over recent weeks on talk of restructuring, were hit even harder.

 The Hang Seng China Enterprises Index, which tracks the sector, dropped 6.17 per cent.

 Red chips dipped 1.61 per cent.

 Among individual shares, Citic Pacific, the investment group ultimately backed by Beijing-based China International Trust & Investment Corp, suffered some of the heaviest losses.

 It dropped 5.9 per cent to $48 as fellow Citic unit Ka Wah Bank said it was looking to register in Bermuda.

 Brokers said investors were concerned that Ka Wah might attract choicer assets from parent Citic Beijing.

 Citic Pacific was the day's most actively traded issue by value.

 Turnover remained very strong, with shares worth $30.72 billion changing hands.



HSI slides 400 points