THE Olympic flag was lowered from the stock market yesterday as disappointment over China's failure to host the games clipped 55.95 points off the Hang Seng Index to close at 7,525.05. Vickers Ballas director Barry Yates said the market's reaction was one of severely deflated optimism. ''China had campaigned on the message of a more open China and saw its bid as an opportunity to regain international standing while laying to rest the memory of the Tiananmen tragedy,'' he said. ''Its reaction to its dashed hopes was one of renewed xenophobia and paranoia - with the territory's pro-Beijing press re-running Deng Xiaopeng's 1982 warning that China would be compelled to reconsider taking back Hong Kong earlier if there were serious''disturbances'' in the run-up to 1997.'' The ''no'' vote was expected to sour the mood of the market and the political agenda over the coming week, Mr Yates said. The market came under selling pressure in the morning, plunging 136.68 points after 15 minutes of trading. It recovered substantial lost ground later in the day to cut its losses. Turnover was a modest $3.08 billion. But brokers said the market showed resilience as the index fall was not substantial. Seapower Securities research director Samuel Lau Kwok-leung said: ''The market was quite resilient despite disappointment.'' Nomura Research head Clive Weedon described the market's performance as ''absurd''. ''It is comical to see the market coming down on the grounds of a sporting event that will be taking place in seven years time,'' he said. H-shares and China related stocks were the biggest victims yesterday as share prices had risen on the back of Olympics optimism. Guangdong Investment fell four cents to $3.025 while Shanghai Petrochemical lost six cents to $1.90.