Mainland-related firms suffer heavy selling as market speculation over an interest-rate increase continues Hong Kong stocks fell for a second consecutive day yesterday as profit taking in property counters continued and speculation about an imminent interest-rate rise in China put pressure on mainland-related companies. A fatal bomb blast outside the Australian embassy in Jakarta also dampened investor sentiment and led to accelerated selling in the afternoon. The Hang Seng Index had hovered near Wednesday's closing level for most of the morning following positive comments on United States growth by Federal Reserve chairman Alan Greenspan. After three days above the psychologically significant 13,000-point level, the Hang Seng Index retreated to 12,942.2 yesterday, down 107.76 points or 0.83 per cent on the day. The H-share index fell 89.2 points or 2.03 per cent to 4,315. Trading volumes remained fairly robust at $13.11 billion but eased from the previous session's $17.4 billion, which indicated overall selling pressure was not escalating. Property counters underperformed the broader market for a second day, however, after climbing 85 per cent on Monday and Tuesday and 15 per cent since the beginning of last month. The recent gains had boosted speculation about share placements in the sector, dealers said, naming Henderson Land, New World Development and Great Eagle Holdings as being among the prime candidates. With the market now retreating, developers 'may have to shelve those plans until after the [October 12] land auction when share prices can be expected to rise again', Fulbright Securities general manager Francis Lun said. The properties sub-index was down 1.01 per cent yesterday as Cheung Kong slipped 1.82 per cent to $67.25 and Sun Hung Kai Properties gave up 0.67 per cent to $74.50. Outside the index, Great Eagle fell 5.21 per cent to $14.55, extending its two-day loss to 8.2 per cent. New World Development dropped 1.3 per cent to $7.60 after falling 3.14 per cent on Wednesday. HSBC dropped 0.41 per cent to $122 while China Mobile fell 1.51 per cent to $22.90. The two heavyweights jointly cut 40.1 points from the index, accounting for more than one third of the overall decline. Defensive utility stocks, which have recently been snapped up by some large Hong Kong mandatory provident funds, were generally higher. The blue-chip export counters also bucked the trend after Mr Greenspan said the US economy had 'regained some traction', having run into a soft patch in late spring. Sourcing firm Li & Fung gained 1.37 per cent to $11.10, micro-motor maker Johnson Electric added 0.62 per cent to $8.15 and athletic footwear maker Yue Yuen Industrial was up 0.53 per cent at $19. Mainland container ports operator Cosco Pacific was the top blue-chip performer in percentage terms, jumping 2.53 per cent to $12.15 on the back of a 26 per cent rise in first-half earnings. 'The company is moving out of the earnings doldrums,' Macquarie analysts Peter So and Allen Choi said in a report. 'Recovering container leasing rates, rapid expansion in its container terminal business and throughputs, and additional contributions from CIMC [China International Marine Containers] and its logistics operations should drive earnings to grow at 26 per cent [this year] and 30 per cent [next year], significantly higher than the single-digit growth in the past five years.' The two analysts had an outperform rating on the stock and a target price of $14. PetroChina led the decline among H shares with a 4.35 per cent drop to $3.85 but basic material stocks were also mainly weaker amid a growing belief that China may increase interest rates as early as this month. 'Initially, people were talking about a rate increase after the October 1 holiday but now it seems it could come sooner than that and that is dampening sentiment for H shares,' Phillip Securities director Louis Wong said. JP Morgan's China economist and strategist Frank Gong, in a recent report projecting a rate rise by late this month, had said: 'Our reading of the People's Bank of China's policy inclination is that the authorities are close to a consensus now on shifting towards a more market-based policy instrument.' A senior central government economist said fixed-asset investments rose 32 per cent from a year earlier last month, faster than the growth rate in the first seven months, suggesting more needed to be done to cool the economy. 'The figures indicate that there is a serious structural problem,' Wu Jinglian was quoted as saying by Bloomberg. 'The government policies haven't been as effective as the media has been reporting them to be.' Aluminum Corp of China dipped 3.63 per cent to $3.875 and Yanzhou Coal was off 2.84 per cent to $8.55. China Telecom dropped 2.91 per cent to $2.50. Semtech International Holdings plunged 74.84 per cent as it resumed trading after being suspended for nearly two months but later recovered slightly to finish 50.3 per cent lower at 79 cents. The company said two executives, including its former chairman, had been arrested by the Independent Commission Against Corruption on bribery allegations.