Hong Kong stocks closed flat yesterday, slipping back following strong early gains in a shortened trading day, with a rainstorm warning cancelling morning trade. The Hang Seng Index gained just 6.92 points, or 0.05 per cent, over the afternoon to close at 13,573.66 on turnover of $4.05 billion. The blue-chip index initially surged to a high of 13,834.89 points on positive sentiment from gains in regional markets. 'A very strong performance in Tokyo drove the market up,' DBS Securities director of research Frederick Tsang Sui-cheong said. Sentiment was also boosted by Friday's rally on Wall Street. 'The first half hour was people rushing in and the second half hour was people rushing out,' South China Brokerage vice-chairman Howard Gorges said. The profit-taking was triggered when the index passed the technical resistance level of 13,800, a broker said. Investors also became concerned that the market was overstretched, having risen more than 9 per cent in the past eight trading days. Mr Tsang said: 'As the market moves towards 14,000 it becomes less attractive for people to chase up the share prices.' Great Eagle led gains among the blue chips, rising 2.94 per cent to $12.25 with Sino Land gaining 2.42 per cent to $4.225. Hang Lung Development fell 4.76 per cent to $9 and First Pacific declined 4.09 per cent to $5.85. Union Bank fell 18.93 per cent to $4.175 after reporting a worse than expected interim loss of $557.09 million compared with a $123.5 million profit in the first half of last year. The company also announced a one-for-two rights issue at $3.70 per share which helped depress the price. The red-chip index declined 23.53 points, or 2.06 per cent, to 1,115.09. H shares also suffered after some companies reported disappointing interim results. First Tractor fell 5.85 per cent to $1.61 after reporting a 40.39 per cent drop in interim profit to 39.19 million yuan (about HK$36.56 million). The H-share index fell 8.17 points, or 1.43 per cent, to close at 563.02. Brokers said the market had already priced in a 25-basis point interest rate rise in the United States, expected to be announced later today. The interest-rate setting Federal Open Market Committee meeting would be closely watched for indications about the future direction of US monetary policy. Data released after the market closed showed strong deflation, with the composite consumer price index down 5.5 per cent year-on-year last month, which is likely to depress share prices.