A falling yen knocked 1.57 per cent off Hong Kong shares yesterday, with further downside stemmed by arbitrage buying of HSBC ahead of its results on Monday. The Hang Seng Index shed 148.27 points, mostly in the first hour of trading, ending the day at 9,254.12. Brokers said higher Hong Kong interest rates, in line with a weaker yen, prompted selling of rate-sensitive bank and property counters. HSBC resisted the trend, rising 2.32 per cent to $198. Brokers said the buying was trading-oriented, with few long-term investors willing to take positions ahead of the results. An opportunity to arbitrage HSBC between London's $202 close on Thursday night and Hong Kong's $193.50 close on Monday prompted a stream of buy orders in the morning session, brokers said. 'This is one of the few times that you have a clear bet. That's why it opened higher and stayed higher,' one broker said. Turnover in HSBC faded in the afternoon as the price gap narrowed. Baring Asset Management head of equity investments Khiem Do said some investors could also have been switching out of Hang Seng Bank into its parent. 'On a quiet day if one person decides to reweight then it will push the market.' Hang Seng Bank finished 5.24 per cent lower at $58.75. The Hang Seng Property sub-index fell 3.47 per cent to 11,979.63 points. Cheung Kong shed 3.13 per cent to $49.40 while Swire Pacific was down 4.11 per cent to $30.30, on news that its $2 billion syndicated term loan had been raised to $2.85 billion. South China Brokerage head of sales Douglas Hansen-Luke said firming interest rates and the weakening yen had sidelined investors. 'But until the yen gets to 130 it's not time to take to the hills.' The yen breached 120 against the US dollar in New York early yesterday and was trading just below that level for the rest of the day with the Japanese Government apparently unfazed by the movement. Mr Do said: 'When you have price deflation, any rise in Hibor rates will impact on the valuation of shares.' Most brokers see the market trading cautiously in the next few weeks, as investors pick their way through the reporting season.