Bears take cue from forex swings and US economic data

Hong Kong stocks may head lower this week as a sliding Japanese yen and discouraging news from the United States spur investors to cash in gains from the recent rally.

On Friday, the yen was as low as 127.95 to the US dollar before ending in New York at 127.36. It has shed 9.25 per cent against the greenback since September 21. Remarks by Japanese officials have encouraged the slide.

A weaker yen helps recession-hit Japan boost exports but usually affects Asian stocks. Asian currencies tend to fall in line with the yen, making it unattractive for foreign investors to hold regional assets, such as stocks. The weaker yen could also eventually raise fears of a yuan devaluation. Such talk would send ripples through Hong Kong's financial markets.

'Any sharp fluctuation in currencies brings some nervousness to equity markets,' South China Securities head of institutional sales Raymond Tsui Yick-ki said.

Wall Street eked out gains on Friday, with the Dow Jones Industrial Average rising 44.7 points to 9,811.15 and the Nasdaq Composite Index gaining 6.66 points to end at 1,953.17.

The gains came despite data showing the fourth straight month of decline in US industrial production and manufacturing capacity utilisation at only 74.7 per cent, its lowest since 1983.