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August 6, 2009

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HK stocks slip amid rumors on regulations

HONG Kong shares dropped yesterday as speculation swirled about the likely steps China may undertake to rein in liquidity on the mainland.

The Securities Times reported that the China Banking Regulatory Commission may informally ask smaller banks on the mainland to raise their capital adequacy ratio to 12 percent. The minimum regulatory requirement is 8 percent.

"Monetary policy in the second half is likely to appear loose but will actually be tightened little by little, making it increasingly difficult to select profitable stocks," said Huatai Securities analyst Chen Huiqin.

Brokers also cited market talk of a likely quality inspection of the loan books at Chinese banks and a possible tightening of lending to the property sector.

China Construction Bank led losses with a 3.3 percent drop in Hong Kong.

Shares in Cathay Pacific Airways tanked 3.6 percent even after the airline announced its return to profit, helped by hedging gains, as worries persisted about a sustained pick-up in demand and climbing fuel prices.

"Investors are just looking for excuses to sell shares and take profits now. Corporate earnings and economic data from the United States might give them the excuse they need," said Peter Lai, director with DBS Vickers.

The benchmark Hang Seng Index finished 301.66 points lower at 20,494.77.

The gauge failed to hold above 21,000 points after breaking through that level for the first time in 11 months on Tuesday.

Investors turned wary as valuations of blue chips inched closer to 21 times their estimated earnings in 2009.

The China Enterprises Index, which represents top locally listed mainland stocks, was 2.1 percent lower at 11,968.48.

Hong Kong Aircraft Engineering Co slid 8 percent to HK$102.10 (US$13.17) after posting a 27 percent drop in first-half profit.

Bucking the downtrend, China Railway Group soared 7.7 percent to HK$7.60 after Goldman Sachs raised its rating on the stock as it expects railway investments in China to remain strong for the rest of 2009.

The stock scaled a 14-month high of HK$7.76 earlier.

Goldman Sachs upgraded the stock to "buy" from "neutral" and nearly doubled its target price to HK$10.35.


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