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SCMP Reporter

The Hong Kong share market dropped to a two-month low yesterday as the Hang Seng Index closed on the wrong side of the 11,000-point level for the first time since mid-November.

The index ended 49.5 points lower at 10,964.09.

'The [United States] is in reporting season and we are still on recovery expectations. We're now looking at the corporate earnings coming out and are very cautious on that,' said Alex Wong, the research head at OSK Asia Research.

Mr Wong said investors were also using last week's gloomy speech by US Federal Reserve chairman Alan Greenspan as an excuse to take profits from a dizzying rally which began worldwide on September 21 last year.

'By the time he spoke, the market had come up a lot so it was easier for people to pick on the negatives from his speech, which is another reason why it reacted so much. Ahead of the speech, the market was overbought,' he said.

Even positive economic data failed to halt the slide as trading house Li & Fung lost 3.38 per cent to close at HK$10.

Merrill Lynch analyst David Cui said the sell-down in Li & Fung was not unwarranted.

'It's had an incredible run over the past two to three weeks so a short-term pull-back is to be expected,' Mr Cui said.

'We always said what's important from Li & Fung's share price perspective is whether we'll see any US economic recovery [this year] - hopefully, by the end of the third or in the fourth quarter. We're still confident about that recovery and so have had a buy recommendation [on the stock] and are maintaining that.'

Figures from the US Government showed that retail sales for the crucial December shopping season declined only 0.1 per cent against an expected 1.4 per cent drop, according to a Reuters poll of analysts.

Micromotor play Johnson Electric also slipped in spite of the data, closing 4.94 per cent weaker at $8.65.

Also depressing stocks was decidedly unenthusiastic guidance for the first quarter from Intel Corp. Although the semiconductor titan met analyst expectations for the fourth quarter, the company said it could see few signs of recovery and cut this year's capital expenditure by 25 per cent.

US networking equipment maker Juniper Networks also forecast flat first-quarter revenue as it managed to meet the lower end of analysts' expectations for the fourth quarter.

The less than upbeat guidance was felt on the main board as chip equipment maker ASM Pacific recorded a 1.48 per cent slide to $16.55 while personal computer hardware supplier TPV Technology settled 5.3 per cent lower at $3.125.

Citic Pacific continued to take knocks from the announcement that it would pull out of the mainland telecommunications sector. The red-chip conglomerate extended Tuesday's 9.43 per cent slump, falling 4.56 per cent to $14.65.

Sun Hung Kai Financial Group research head Joseph Tang said the terms of the deal - by which Citic would sell its entire 80 per cent stake in a mainland fixed-line network back to its parent - were satisfactory but questions were raised about the company's strategy.

'I don't see it as a bad deal but in terms of future business prospects it may not offer too much exciting potential with the telecoms [assets] taken out,' Mr Tang said.

'Their corporate strategy is something that's doing them damage in terms of the share price.'

davidw@scmp.com

Key Figures

Close: 10,964.09 (- 49.5)

Turnover: $6.08 bln

Volume: 5.16 bln shares

Day's high: 11,080.55

Day's low:10,910.75

Advanced: 232

Declined: 252

Unchanged: 394

January futures: 10,935 (- 68)

February futures: 10,950 (- 67)



Profit takers busy as Intel remarks add to gloom from Greenspan speech