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Stephen Seawright

Hong Kong stocks rallied in the afternoon session yesterday to close up 1.62 per cent after better than expected interim results from Bank of East Asia (BEA) boosted sentiment in line with a technical rebound.

 The Hang Seng Index ended 208.57 points higher at 13,075.09.

 The market closed the morning session broadly flat, with the index at 12,865.55 points before BEA announced its results for the six months to June, with lower than expected provisions for bad loans.

 The results triggered buying following the Hang Seng Index's 9.5 per cent fall since the start of sabre-rattling across the Taiwan Strait earlier this month.

 Such falls have been compounded by concerns that interest rates in the United States may be increased again to prevent higher inflation.

 BEA gained 1.39 per cent to close at $18.20.

 Hang Seng Bank rose 3.49 per cent to $81.50 on the back of the improved sentiment from the interim results rather than a common business theme, brokers said.

 Hang Seng Bank concentrated on lending to domestic corporations while BEA had more exposure to mainland-related businesses, they said.

 'It has more to do with sentiment - Hang Seng Bank's book would be totally different to the Bank of East Asia,' J&A Securities head of sales Eric Lee Ming-chuan said.

 HSBC gained 1.38 per cent to close at $91.25.

 Some smaller banks also gained on the back of the results, with International Bank of Asia rising 4.76 per cent to $2.20 and Citic Ka Wah Bank gaining 6.55 per cent to $3.25.

 'Several of the smaller banks are up - they're not going mad but they are generally firmer,' South China Brokerage vice-chairman Howard Gorges said.

 Some brokerages had been urging investors to start accumulating stocks when the market fell to less than 13,000 points, which it closed below on Monday for the first time in six weeks.

 'At this level people have started buying already,' BNP Prime Peregrine head of Hong Kong research Adrian Ngan Wai-hung said.

 China plays also performed better after sharp falls on Monday. The H-share index gained 2.39 per cent to close at 527.72 points while the red-chip index rose 1.51 per cent to 1,148.38 points.

 Analysts said yesterday's gains amongst the China plays were unlikely to multiply due to the negative news in the market, particularly rumours about the possible devaluation of the Chinese yuan.

 'Renminbi devaluation is still there and when this buying interest has dried up people will be bearish again,' Mr Ngan said.

 Mr Gorges warned that, despite some improvement in market sentiment, there was little positive news to push stocks higher.

 'The uncertainties that have hit the market over the last few weeks have been discounted more and worst-case scenarios are less likely to happen,' he said.



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