Oil, interest rates, hedge fund rumours and HSBC spark mid-day collapse Hong Kong's leading stocks took their biggest tumble in 16 months yesterday as higher oil prices, talk of rising interest rates and heavy selling of HSBC Holdings by a major investment bank spooked investors. The sell-off coincided with the first policy address by Chief Executive Donald Tsang Yam-kuen, but while some brokers said the lack of economic news in the speech might have been a disappointment to investors, most acknowledged that it was unlikely to have caused much selling. 'People didn't expect much from the speech and nobody had really positioned themselves either way beforehand,' a hedge fund salesman said. Hong Kong investors were not the only ones turning bearish. From about noon, equity markets in Tokyo, Seoul and Taipei fell sharply amid rumours that foreign funds may be leaving Asia due to a strengthening US dollar. 'There were rumours that hedge funds were selling the region and several markets also failed to break higher early in the day,' DBS Vickers sales director Peter Lai Wing-leung said as a possible explanation for the initial drop. In Hong Kong, the selling accelerated in the afternoon as stop-loss positions were triggered. 'Eventually it turned into some kind of panic selling,' Mr Lai said. However, a hedge fund salesman at a regional brokerage said there had been little evidence of big funds exiting Asia. The Hang Seng Index dropped 323.75 points, or 2.17 per cent, to finish at 14,575.02 - well below the 14,700-14,750 range, previously regarded as a strong support level. The sharp decline left the market 'a bit oversold', which suggested a slight rebound in the next few days. But in the medium term, the market had adopted a weaker trend and it would be difficult for the Hang Seng Index to return to above 15,000 points, said First Shanghai Securities strategist Linus Yip. South Korea's Composite Index had a bad day, dropping 2.18 per cent, after closing at a record high on Tuesday. In Japan, the Nikkei-225 Index finished 0.68 per cent lower, having traded 1 per cent up in the early part of the day. Taiwan's Weighted Index shed 1.3 per cent. Hong Kong's property stocks were among the main losers after the minutes from the September 20 Federal Reserve meeting offered some of the clearest evidence to date that the US central bank would continue to raise rates over the next few months. According to the release, 'upside risks to inflation appeared to have increased' after Hurricane Katrina ripped through the US Gulf coast on August 29 and 'further rate increases probably would be required'. Cheung Kong (Holdings) fell 2.75 per cent, while Sun Hung Kai Properties slid 2.27 per cent and New World Development shed 4.36 per cent. The focus was on HSBC, which fell 1.45 per cent to its lowest close in more than three months and saw $3.78 billion worth of shares change hands - 2.9 times more than the second most active stock, Hutchison Whampoa, which ended 2.46 per cent lower. Many of the sell orders on Hong Kong's biggest bank came from Credit Suisse First Boston, which had sold shares equal to a 1 per cent stake in the bank over the past two weeks, a Monday disclosure notice to London Stock Exchange said. CSFB holds 6.23 per cent of the bank and according to brokers, the selling related to outstanding warrants or over-the-counter derivatives. The fear was CSFB would sell shares in the coming months as it eased hedging of warrants and other products nearing expiry, Mr Lai said.