THE rally expected after the next meeting of the Joint Liaison Group was announced on Thursday failed to materialise yesterday, as the Hang Seng Index gained only 6.16 points to 7,266.74. Brokers said investor reaction to news of the meeting was tempered because prices of Hongkong stocks in London on Thursday night gained little ground in the wake of weakness in New York. Turnover was $3.77 billion. Second and third liners were in the limelight and were traded heavily. June index futures ended 52 points higher at 7,320 due to an afternoon rally which put on 55 points. Salomon Brothers managing director William Phillips said there was little to excite investors, who adopted a cautious approach before the long weekend and next week's fifth round of Sino-British discussions in Beijing. He said many investors were also concerned about the effects of a credit squeeze and possible anti-inflationary measures in China. Lehman Brothers said it had reduced its weighting for Hongkong stocks in its global equities portfolio from four per cent to two because of China's inflation and currency problems. Kleinwort Benson Securities assistant director Tony Edwards said US institutional investors were hesitant before yesterday's release of producer price data and consumer price index figures on Tuesday. If producer prices climbed more than 0.1 per cent last month, the Federal Reserve could raise short-term interest rates. Brokers said this would hurt the liquidity-driven US stock markets and possibly have an impact on Hongkong. Mr Edwards said the writing was on the wall for an impending correction in Hongkong because all the needed symptoms were evident. These included the entrance of retail investors, rising popularity of second and third line stocks, investors' decision to ignore China's economic woes and the launch of capital raising, which will occur over the next six weeks. Second and third-line counters dominated trading yesterday as speculation about mainland takeovers propelled Lolliman, World Trade Centre Group, Emperor International and Dynamic into the spotlight. Lolliman was the most heavily-traded with a turnover of $150.67 million. The stock jumped 17.4 per cent or 15 cents to $1.01 after mainland-controlled Continental Mariner approached Emperor about acquiring its controlling stake in Lolliman on Thursday. Emperor fell one cent to 72 cents on a volume of 68.5 million shares. World Trade Centre rose 12 cents to $2.10 following Tomson Pacific's decision to accept a $1.88-a-share offer from China National Cereals Oils and Foodstuffs Imports and Export Corp for its 35 per cent stake in World Trade Centre. Seapower Securities research director Samuel Lau Kwok-leung said the purchase of World Trade Centre shares was risky because the stock exchange had the option of rejecting its listing status. Dynamic, which remains a possible takeover target, jumped 23.5 per cent or 10.5 cents to 55 cents. Another intriguing development was the sharp rise of Tung Wing Steel, which gained 25.5 per cent or $1.067 to $5.25. Brokers said Tung Wing and its stablemates, Public International and Kader Investment, gained ground this week in anticipation of an extensive rights offering. Cheung Kong edged up 10 cents to $27.70 on a turnover of only $63.88 million. The company yesterday signed a $10 billion joint-venture deal with the Zhuhai municipal government to build a power plant. Schroder Securities issued a research report yesterday that said Cheung Kong's participation in the proposed takeover of Miramar Hotel and other property deals would raise its debt to $8 billion by year-end. The report said this could require Cheung Kong to sell assets to improve cash flow. Miramar, the subject of a takeover bid by Cheung Kong and CITIC Pacific, climbed 30 cents to $16.30, against the bid price of $15.50.