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SCMP Reporter

AN expected interest rate rise in the United States and falls on Wall Street last Friday sent the market lower yesterday.

  The Hang Seng Index closed at 9,434.31 points, down 96.09 points, or 1.01 per cent.

  Turnover was thin at $2.24 billion, reflecting the lack of incentive for investors either to sell or buy.

  Blue chips held most interest, accounting for 61.15 per cent of trading volume.

  'Although the market suffered a slump, there was no selling pressure and the actual turnover was not outstanding,' an analyst said.

  The one-per-cent decline on Wall Street last Friday after a rise in US earnings data was believed to be the major element dampening trading sentiment, said Eugene Law, research director at Standard Chartered.

  'Investors also remained sideline ahead of an expected rise in US interest rate [which will be decided in the US Federal Open Market Committee (FOMC) tomorrow],' Mr Law said.

  It was expected that the market would remain weak but would not encounter a great plunge, and that market turnover would be about $2 billion to $3 billion, he said.

  Mr Law predicted the market would rebound to more than 9,700 points if the FOMC decided to raise interest rates by 0.5 or 0.75 percentage points.

  However, other analysts were not convinced an increase in interest rates would be beneficial to the Hong Kong market.

  If rates do increase by half a point as expected tomorrow it will take the US long-bond yield well into the eight per cent range.

  Another rate rise before the end of the year is also seen as likely, which could put interest rates at nine per cent.

  Fund managers have said that if rates rose this high they would consider placing more of their money into fixed-income investments rather than the stock market.

  One of the hardest affected markets could be Asia, where there is more hot money that could be easily repatriated without too much trouble.

  Another problem facing the Hong Kong market is uninspiring earnings growth.

  One reason the US market has managed to make gains in a rising interest-rate environment is that earnings are recovering as the economy recovers.

  However, the Hong Kong economy is looking tired and companies are reporting results that are either in line or below analyst expectations.

  The combination of rising interest rates and declining corporate profits is a major problem plaguing the market.

  But amid the uncertainties of US interest rates, investors were still expected to hold a wait-and-see attitude this week.

  Though Sino-British authorities last Friday gave some details on the Government's cash injection for the airport project and the cap of debts for both the Mass Transit Railway Corp and the Provisional Airport Authority, investors were still cautious about the details of the financing yet to be announced, brokers said.

  Blue chip Winsor Industrial Corp, Hong Kong's largest listed textile and garment company, was the only blue chip stock to make a gain yesterday.

  The counter rose 10 cents to close at $10.85.

  Mr Law said there was bargain hunting as the counter was a laggard.

  By sector, the commerce and industry sub-index was the worst performer, losing 1.41 per cent to close 103.42 points lower at 7,208.78 points.

  Analysts said profit margin of the industrial companies were eroded because their mainland operations were affected by the spiralling inflation rate in China.

  Profit-taking in Hongkong Telecom also pulled the index down by 12.56 points.

  The counter dropped 1.25 per cent to close 20 cents lower at $15.75 on a turnover of $49.93 million.

      Hutchison Whampoa, which dropped 12.22 points, finished at $34.60, down 1.7 per cent or 60 cents.



US factors drag index down 1pc on low activity