Hong Kong Monetary Authority deputy chief executive Andrew Sheng Len Tao has indicated that maintaining the stability of the Hong Kong dollar is more important than the performance of the HK$659.5 billion Exchange Fund in the short term. Mr Sheng said last week's intervention should not have a 'significant' impact on the fund's performance, but admitted the prices of the shares it purchased could decline. 'I would say that the amount of the intervention is not high enough to have a significant impact on the returns of the Exchange Fund. 'Of course, stock and futures markets go up and down and the fund may suffer losses as a result of the intervention,' he said. 'However, the ultimate aim of reserve management is not to achieve the highest returns but to defend local currency stability.' Mr Sheng, in charge of reserves management for the HK$659.5 billion Exchange Fund, did not say how much of the fund was used for the intervention. Some market sources have estimated the amount at HK$3 billion. Mr Sheng confirmed the authority financed the intervention by tapping its local currency holdings, leaving its US dollar-denominated assets which account for 90 per cent of the fund untouched. HKMA chief executive Joseph Yam Chi-kwong suggested last month that the investment outlook for the fund in the second half was 'unfavourable', due to the possibility of higher US interest rates. The authority achieved a 6.2 per cent increase in the Exchange Fund's accumulated surplus for the first six months, better than the 5.2 per cent growth recorded in the corresponding period last year. Mr Sheng said the fund would continue to hold primarily US dollar assets, reflecting the unit's strength and stability. 'European currencies are under pressure ahead of the launch of the euro and the yen is not yet stable,' he said. There are fears in the market that the Government's intervention could turn into a war of attrition with currency speculators, threatening reserves. Mr Sheng said it was too early to say how long intervention would be required, but said the Government would intervene in the market again if needed. Hong Kong's foreign reserves stood at US$96.5 billion in June - compared with May's US$96.4 billion - the world's third-largest after Japan (US$205.9 billion) and the mainland (US$140.5 billion). Mr Sheng said the Government would intervene only to defend the peg and that, as such, it had not altered its policy of non-intervention.