Get ready for a new flood of hot money. Hong Kong's de facto central bank has warned that the US Federal Reserve's latest US$600 billion attempt to boost the world's biggest economy will probably add to the asset and housing bubble here, but says it stands ready to act. The Hong Kong Monetary Authority said it would re-enter the city's red-hot housing market as required after the Fed announced its latest round of quantitative easing, or QE2, early yesterday in Washington. 'We will take measures that are specific to the housing market if necessary,' said Norman Chan Tak-lam, HKMA chief executive, just hours after the Fed announcement. Under the plan, the Fed will buy US government debt, or Treasury bonds from banks, effectively giving them cash to lend in the market. Buying so many bonds effectively lowers interest rates and is intended to encourage people to take out a mortgage or other form of loan to revive the US economy - at the risk of creating problems further afield in markets like Hong Kong. 'The risk of an asset bubble in Hong Kong's property market is rising,' Chan said. 'Everybody should stay alert. Banks should manage their risks and be fully prepared, and homebuyers should not buy property just because interest rates are low.' Financial Secretary John Tsang Chun-wah echoed Chan's concerns about asset bubbles, and three commercial banks in Hong Kong have raised mortgage rates this week. The Fed has already spent about US$1.7 trillion from 2008 to earlier this year to take bonds off the hands of banks and stabilise them, and restore confidence to the market, but failed to boost the economy or create jobs. 'At the same time, excessive liquidity has flowed into emerging markets where the economic outlook is more favourable, creating pressure on exchange rates, consumer price inflation and asset prices,' Chan said. As hot money continues to flow in, Hong Kong's interest rates would stay close to zero, increasing the risk of an asset bubble, Chan said. Some countries - including Australia, India and China - have lifted interest rates to head off inflation and asset bubbles. But Hong Kong's currency peg means its rates have to track the Fed. 'The Fed is printing money for other people - not just for the US,' said Louis Wong Wai- kit, director of Phillip Capital Management. 'Like Japan, which has had numerous rounds of quantitative easing over the past decade, but still can't revive its economy because people just take the cheap money and invest in emerging markets where the returns are higher. QE2 will probably create a bubble in Asia and Hong Kong rather than boosting the US economy.' The Hang Seng Index yesterday rose 390.96 points, or 1.62 per cent, to close at 24,535.63. The HKMA introduced measures in October 2009 and August this year to curb luxury residential mortgage lending, but prices have still topped the highs they reached in 1997, when the city last had a housing bubble. Chan rejected the option of removing the Hong Kong dollar's 27-year-old peg to the greenback, saying it had been 'the pillar for monetary and financial stability in Hong Kong. We have no plan to change it'. Another banker said QE2 would be good news for short-term investors. 'Stock and property markets are likely to continue to do well for the moment.'