Bank's expected US$5.7b write-down renews subprime fears Hong Kong stocks joined a regional rout yesterday, with investors dumping financial counters after Merrill Lynch announced huge new write-downs, a move that renewed suspicion there may be more subprime damage on the way. The Hang Seng Index sank almost 600 points in early morning trading before closing down 429.21 points or 1.89 per cent at 22,258 for its fourth consecutive drop. All but three of the index's 43 members declined on the day. 'We haven't heard the end of the subprime problems and we haven't heard the end of the mortgage problems in the United States,' said Howard Gorges, the vice-chairman of South China Securities. 'And because we just had a rally [in the local market], it may be a good excuse for profit taking and some consolidation.' Still, Wall Street rebounded yesterday after Monday's sell-off on news that Merrill Lynch was dumping distressed mortgage assets and raising fresh capital. By midday, the Dow Jones Industrial Average was up 1.52 per cent, the Standard & Poor's 500 Index was 1.44 per cent higher, and the Nasdaq Composite Index had risen 2.18 per cent. In Hong Kong, investors were on alert after Australia and New Zealand Banking Group said on Monday its full-year profit might fall the most since 1992 because of bad loans. Merrill compounded concern later that day, saying it would book write-downs of about US$5.7 billion in the third quarter. Merrill's expected write-downs prompted Deutsche Bank analyst Mike Mayo to warn that Citigroup might post third-quarter write-downs of about US$8 billion. Merrill's news weighed on indices across the region yesterday as Japan lost 1.46 per cent, South Korea dropped 1.95 per cent, Taiwan plunged 3.03 per cent and the Philippines declined 0.58 per cent. Mainland stocks were also slammed, with the Shanghai Composite Index falling 52.7 points or 1.82 per cent to 2,850.31, its largest one-day drop in almost two weeks. In Hong Kong, investors were anxious to pare back positions in banking stocks. Bank of East Asia paced losers among the financials, dropping 3.07 per cent to HK$36.30. The lender has been linked to the subprime crisis after it announced in February that it had booked a US$140 million loss on collateralised debt obligations. 'Whenever we have this news in the market, all these fears about the write-downs in the financial sector tend to resurface,' one analyst said. Sentiment flagged in the local market this week, though turnover rose yesterday to HK$47.54 billion from HK$41.47 billion on Monday. Hong Kong Exchanges and Clearing, the exchange operator, skidded 4.04 per cent to HK$114 for its largest one-day fall in two weeks. 'The market is waiting for upcoming figures,' said Patrick Yiu Ho-yin, an associate director at CASH Asset Management. 'In the next few trading days, in the US and Hong Kong, the market will be very quiet.' Investors are waiting for US second-quarter gross domestic product and monthly jobs figures due out tomorrow and Friday. Some local blue chips including HSBC will also report earnings next week. Adding to pessimism about the strength of the US economy, yesterday's Standard & Poor's/Case Shiller home price index showed a record fall in May. Its composite index of 20 metropolitan areas fell 15.8 per cent from May last year, while the composite index of 10 metropolitan areas fell 16.9 per cent. Data released late last night also showed that consumer confidence barely recovered this month from a 16-year low in June as Americans worried about job prospects, a private report showed.