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Sell-off of HSBC helps send index tumbling 2.15pc

STOCKS closed sharply lower in line with regional markets on the back of Wall Street losses.

Brokers said a rise in the 30-year bond yield fuelled concerns that interest rates might increase to fend off inflation.

The Hang Seng Index dropped 2.15 per cent to close 197.02 points down at 8,966.07. Volume was $3.12 billion.

Volumes remained thin because of uncertainty about interest rates and a general lack of good news to induce buying.

The past two weeks have seen the long-bond yield flatten, but trading in the US on Thursday saw the 30-year Treasury yield jump to 7.26 per cent, up 16 basis points.

Traders said the sudden increase was caused by figures contained in the quarterly US growth figures which showed inflation was picking up.

A renewed sell-off in HSBC stocks from London institutions added to the market's woes yesterday.

Brokers said the persistent rumours about heavy trading losses in the first quarter were forcing many fund managers to look at the counter again.

Nerves were tested when the counter looked as though it was moving to a new low for the year.

But some buying support later in the day lifted the price.

At one point the counter equalled its lowest level this year at $84.50 before closing at $85.50, $1.50 down on Thursday's close.

HSBC, with the heaviest weighting in the Hang Seng Index, was responsible for most of its fall yesterday.

Utilities continued to fall as concerns about further interest rate increases took their toll.

The counters were in a vulnerable position because they had been over-bought earlier this week, and brokers said it only took a nudge from interest rate fears to knock them down.

China Light and Power, which was heavily supported by Nomura on Thursday, slipped 75 cents to close at $40.25.

Hong Kong Electric lost 60 cents to close at $22.80.

Property counters continued to dominate trading, with Cheung Kong dropping $1.25 to $36.50.

Sun Hung Kai Properties was the third biggest contributor to yesterday's fall, slipping $1.25 to close at $46.50.

Conglomerates fared little better, with Swire Pacific A the worst performer.

The counter dropped $2 to $55.50.

Wharf was down 70 cents to $29.80.

Wheelock also fell back, losing 60 cents to $17.80.

Hutchison Whampoa continued to be dogged by rumours that it is considering a share placement, slipping $1.25 to $31.75.

Traders expect the market to remain quite bearish next week, especially as a decision on most-favoured nation (MFN) renewal draws closer.

While most analysts remain optimistic about MFN renewal, there is still much opposition that President Bill Clinton must overcome to get approval from Congress.

The recent visit to Washington by Chief Secretary Anson Chan to press Hong Kong's case for MFN renewal should help matters somewhat, analysts said.

The arrival of Lu Ping, the head of the China and Macau Affairs Office, in Hong Kong had little effect on the market.

Earlier in the week stocks were boosted as some investors hoped his visit might herald a breakthrough on airport talks.

But as his itinerary becomes clear and it appears he will not meet with Governor Chris Patten, progress on the talks looks unlikely.

Trading moved in a 190-point range from 9,133.2 to 8,943.3.

The index opened down before rallying back above the 9,100 level.

Unable to find support, traders then sold the market off to close the morning session 123.07 points down at 9,040.02.

Afternoon trading saw the sell-off continue, with the index dropping 100 points before finding support around the 8,950 in the final 30 minutes of trading.