Leading telecommunications stocks dragged Hong Kong's blue-chip index through a key support level yesterday in a market burdened by interest rate fears. The Hang Seng Index shed 283.98 points, or 1.92 per cent, to 14,492.92 on a turnover of HK$8.86 billion. The index had last ended at these levels late last year, when it closed at 14,562.22 points on November 15. Analysts are now expecting a near-term slide to as low as 12,800 points. 'It was an ugly day all round,' a dealer said. 'If it breaks through 14,000, then we could be in for a world of hurt.' China Telecom declined 3.55 per cent to $54.25, accounting for 124 points of the index's losses. The mainland heavyweight and other telecommunications counters such as Hutchison and Cable & Wireless HKT were sold off after valuation concerns in foreign markets sent prices plummeting in offshore trade on Tuesday. CLSA Global Emerging Markets strategist Peter Sutton on Tuesday recommended investors reduce exposure to China Telecom, saying its high valuations made it vulnerable in a rising interest rate environment. Market watchers see United States interest rates rising 50 basis points next week - a negative for Hong Kong as the currency is pegged to the US dollar. ING Baring sales trading head Warren Primhak said: 'What you've got is that people are working out that interest rates are going to be greater in the States and they're realising that is going to be a negative here. There is concern that cash is going to be people's best friend.' On Tuesday, the Nasdaq Composite Index again fell, finishing down 2.29 per cent, with the Dow Jones Industrial Average off 0.63 per cent. Yesterday marked the sixth successive day of Hang Seng Index falls and analysts were becoming increasingly bearish. Sources said earlier in the week that a break through the key resistance levels of 14,800 and then 14,500 was expected to send the index further south before the US Federal Reserve meeting on May 16, at which interest rates would probably be increased. Data from the US have raised fears of inflation, making Federal Reserve chairman Alan Greenspan likely to raise interest rates. In the past week, brokerages have changed short-term recommendations on Hong Kong from overweight to underweight. Nomura Securities Hong Kong sales head Steven Vinik said: 'What we would like to say about the States is that short rates are clearly going up. Alan Greenspan has to stop the spending binge.' Investec Guinness Flight chief investment officer Robert Conlon said: 'The problem is, looking at Asia, Hong Kong is the one most obviously vulnerable to higher US interest rates.' However one trader begged to differ, saying some leading counters stayed above their support levels, including Sun Hung Kai Properties and HSBC. He said 'provided they stay above that', the market would stay on track in the medium term.