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New year effect, liquidity seen lifting opening day

Hong Kong stocks are expected to open higher today, the first trading day of the Year of the Pig, spurred by the Lunar New Year effect and strong overseas markets.

'The probability of the Hang Seng Index opening higher is strong, given ample liquidity in the market and the encouraging performances of the United States and Japanese stock markets,' said Michael Wong, a research director at Hantec Investment International.

However, Mr Wong cautioned that local gains could evaporate if the Bank of Japan raised interest rates today. Borrowing at Japan's ultra-low interest rates and then investing the funds in hot markets such as Hong Kong has become a favourite investor tactic. Analysts predict the Japanese market is pricing in a 60 per cent chance of a rate increase.

Japan's Nikkei-225 Index neared seven-year highs on Monday but stalled yesterday as investors pondered the likelihood of a rate rise.

The Dow Jones Industrial Average gained 1.5 per cent last week, thanks to growing expectations that the Federal Reserve will cut US interest rates later this year.

Macquarie Securities said that based on 30 years of statistics, there is a better than 70 per cent chance of reaping a gain.

'Typically Hong Kong stocks perform well around the Lunar New Year as the market speculates about significant amounts of 'hot money' switching into Hong Kong stocks from mainland stocks before and after a holiday in China,' said Kenny Tang Sing-hing, an associate director at Tung Tai Securities.

However, Champlus Asset Management director Ricky Tam Siu-hing said the 50 percentage-point increase in the mainland reserve requirement ratio announced last week, though anticipated by the market, could hold back the index today.

The analysts said the Hang Seng Index would be choppier in the Year of the Pig than in the Year of the Dog and gains would be milder than last year, when the blue-chip indicator rose 29.5 per cent.

'The index may climb 10 to 15 per cent,' Mr Wong said.

Gold prices are also expected to open higher today. The metal traded at about US$669 per ounce on Friday and in London yesterday it moved above US$670.

'Gold prices will benefit the strength of crude oil prices and a medium-term dip in the US dollar,' said Bruce Wong, a forex and bullion research director at Tai Fook Securities.