Fears of tighter moves hit HK stocks

By Hanny Wan  |   2008-6-12  |     NEWSPAPER EDITION

HONG Kong stocks fell yesterday, dragging the benchmark index to a 10-week low, on concern that the Chinese mainland will take further tightening measures after producer-price inflation rose at the fastest pace in more than three years last month.

China Resources Enterprise Ltd, a state-controlled retailer and brewer, closed at its lowest in 11 weeks, amid speculation that steps by the Chinese central government to fight inflation will erode earnings growth. Cosco Pacific Ltd, Asia's third-biggest container-terminal operator, tumbled the most in almost three months after a one-day suspension pending a statement about a contract in Greece.

"Higher structural core inflation may be an ongoing concern for policy makers, and investors in the Chinese economy," said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co in Hong Kong. "The rise in the PPI threatens to feed through into sustained higher levels of" consumer price inflation.

The Hang Seng Index lost 47.92, or 0.2 percent, to 23,327.60, its lowest close since April 1. The measure plunged 4.2 percent on Tuesday, its biggest decline since March 17, after the Chinese mainland told its banks to increase reserves for a fifth time this year to tame inflation.

The slump pushed the Hang Seng's 14-day relative strength index, which shows how rapidly prices have advanced or retreated during a specified time period, to 35 on Tuesday, close to a level that some fund managers use as a signal to buy, Bloomberg News said.

Shares climb

Shares rose earlier as some investors took advantage of the market's worst day in three months to buy shares cheaply, pushing the Hang Seng Index up by as much as 0.5 percent.

The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese mainland companies, lost 0.7 percent to 12,703.03.

China Resources lost 3.2 percent to HK$24.20 (US$3.10), its lowest close since March 27. China Mobile Ltd, the world's largest mobile phone operator by users, lost 1.4 percent to HK$108.90.

The mainland's factory-gate prices rose 8.2 percent in May from a year earlier, the National Bureau of Statistics said. Cosco Pacific plunged 8.5 percent to HK$12.96, its biggest drop since March 17.