The index got off to strong start, jumping 40.79 points by 10.30 am, but then investors started to take profits, sparking a gradual slide.

News came at lunch time of yet another stalemate in the airport talks, sending the index into a dive when it reopened for trade.

Crosby Securities head of sales Patrick Allen said the market saw follow-through buying to start the day, boosted by better-than-expected interim results from HSBC Holding's Midland Bank unit.

''When there was no news of a positive outcome from the airport talks, the buyers started locking in profits,'' he said.

''After the previous day's jump, with no change in the fundamentals, investors thought it was a good time to start taking in the profits.'' Nomura International vice-president Gary Wong said trading peaked in the afternoon when retailer investors started to sell.

August index futures fell 43 points to 7,180, a premium of 15.8 points to the cash market. Futures traded at a discount for most of the day, climbing to a premium after the cash market closed.

Peregrine Brokerage managing director Peter Fu said the market rally reflected the renewed confidence of overseas investors in the market along with the growing realisation that Chinese Vice-Premier Zhu Rongji's policy were having an impact on the mainland economy.

''Overseas investors are beginning to come round that things are not so bad in China and that Zhu Rongji might be able to put the house in order,'' he said, adding that the fall in prices over the past few weeks was part of a market correction.

Sun Hung Kai Properties fell 75 cents to $38 on a volume of $125.4 million as investors took heavy profits.

Brokers described the drop as ''quite dramatic'', but expected, as the stock price has been pushing up strongly since it moved from $36. The share price is expected to hover at the current level.

Cheung Kong edged up 10 cents to $26.10 on turnover of $165 million.

The property sub-index dropped 82.98 points to 11,154.73 while the utilities sector posted the biggest fall, dropping 82.95 points to 8,268.16.

Swire Pacific A fell 50 cents to $39 on profit-taking after posting strong gains in the past few days.

Fairwood Holdings fell 15 cents to $3.15 after reporting lower-than-expected results on Tuesday for the year ended March 31.

A research report issued yesterday by Schroder Securities recommended investors switch to fast-food rival Cafe de Coral. Schroder also suggested Yaohan International Caterer as an alternative in the restaurant sector.

TVB rebounded strongly, jumping 40 cents to $21.70, after declining last week when News Corp dropped its plan to buy 22.2 per cent of the broadcaster for $1.85 billion. Brokers said TVB was being accumulated by institutional investors.

Mr Wong said TVB was a strong media firm with a mass audience in Hong Kong, Taiwan and China.

Brokers expect today's market to be driven by HSBC after Midland posted a rise in profits to GBP385 million. HSBC's shares soared in London yesterday within hours of the news, hitting $78.25 compared with the close in Hong Kong of $76.

A Kleinwort Benson broker said: ''HSBC Holdings is just going ballistic in London. If it opens up $2 to $3 in Hong Kong that's 30 or 40 points on to the index straight away, because it's such a large proportion of the index.''