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Hang Seng optimism likely to be short-lived

A SLIGHTLY higher level of market optimism may see an early rise in the Hang Seng Index (HSI) this week.

But if there is a rally, analysts expect it to be weak, with low turnover figures continuing to dominate the market.

Baring Securities Hong Kong research manager Peter Rice said US economic figures released last Friday, which showed strong growth without high inflation, could result in a slight improvement in the HSI tomorrow.

However, good news has a limited lifespan in the current market. Mr Rice said the short periods of optimism had become a familiar pattern. 'The market has a day of optimism and then four to five uneventful days,' he said.

Although an official announcement has yet to be made, the news last week that the long-awaited funding deal for the new airport had been clinched should carry more confidence into the market this week.

Events in the US, particularly the release of key economic indicators this week, will also determine the performance of the index.

Schroders Asia manager Kingston Lee said the US indicators would include personal income levels, manufacturing orders, new home and car sales and employment figures.

Mr Lee said the index would continue to trade in its current range this week but there could be an early rise tomorrow in response to the 54-point rise in the Dow Jones industrial average last week.

The expectation of a US interest rate rise sometime this month is still contributing to uncertainty in the Hong Kong market.

Standard Chartered Securities' Eugene Law said no short-term changes were expected in the index. 'People are still very worried about US interest rates and the US currency,' he said.

With bond yields growing steadily, Mr Law said it was natural for funds to flow from equities to money markets. 'It's very hard to reverse this trend. The index won't rise now unless there is an improvement in turnover.' On Monday, the market rose by 25.7 points as news of the airport deal filtered through, but overall, trading levels were sluggish.

The HSI closed the week at 9,379, up 74.89 points on the previous day.