Hong Kong blue chips fell 1.45 per cent in volatile trading yesterday ahead of a key meeting on United States interest rate policy.
The Hang Seng Index closed down 149.4 points at 10,148.69, paring some of Monday's 300.1-point rise.
Brokers said the market opened to heavy selling - it dropped nearly 300 points in the morning - after Moody's Investors Service announced it had cut its rating of Japanese government securities because of Tokyo's inability to fix its economy.
'The market opened down on the back of news that Japan's credit rating got cut,' a derivatives trader said. 'There was obviously a lot of heavy proprietary trading [in futures] at the bigger [investment banks].' Traders said the downward swing had been halted by continued hopes that the US Federal Open Market Committee - which was to meet later yesterday - would reduce US rates for the third time in seven weeks.
'There's still too much bullish sentiment on rates,' the trader said.
Over the past week, the lead index has added 4.39 per cent on hopes that a US rate cut could lead to a similar reduction in Hong Kong.
Property stocks, which benefit the most from rate cuts, remained fairly steady. The sector shed 0.87 per cent to 14,127.99 points, leaving its gain over the past five sessions at 10.53 per cent.
