Hong Kong Stocks Drop, Capping Biggest Weekly Fall Since March

Hong Kong stocks fell, sending the Hang Seng Index to its steepest weekly drop in four months, led by Chinese property developers after the government said it is seeking to limit residential prices in smaller cities.

China Overseas Land & Investment Ltd., controlled by the nation’s construction ministry, sank 4.9 percent. Jiangxi Copper Co., China’s biggest producer of the metal by market value, slid 1.8 percent as metal prices fell after U.S. Federal Reserve Chairman Ben S. Bernanke said he has no immediate plans to further stimulate the economy. Changsha Zoomlion Heavy Industry Science and Technology Development Co., a construction machinery maker, rose 0.9 percent on higher profit expectation.

Imposing China’s property curbs “across the country will affect revenue for a lot of developers, and hurt their share prices,” said Castor Pang, head of research at Core-Pacific Yamaichi International Ltd. in Hong Kong. “Companies’ positive profit surprises are helping to improve the market sentiment, but it won’t create a strong rebound.”

The Hang Seng Index fell 0.3 percent to 21,875.38 at the close, after rising as much as 0.2 percent. About twice as many stocks fell as gained in the 46-member gauge. The gauge sank 3.7 percent for the week, the steepest since the period ended March 18. The Hang Seng China Enterprises Index of Chinese companies’ H shares fell 0.5 percent to 12,266.32.

Property Curbs

A measure of property developers had the biggest decline among the Hang Seng Index’s four industry groups. China Overseas Land sank 4.9 percent to HK$16.08. China Resources Land Ltd., a state-controlled developer, fell 2.9 percent to HK$14.68.

China will expand its efforts to curb growth in home prices to smaller cities after limiting property purchases in Beijing and Shanghai, according to a summary of a State Council meeting chaired by Premier Wen Jiabao.

The government said so-called second and third-tier cities which have seen excessive price gains should restrict the number of homes each family is allowed to buy, according to the State Council or cabinet yesterday.

Jiangxi Copper slid 1.8 percent to HK$27, and Minmetals Resources Ltd., a copper and alumina producer, fell 0.7 percent to HK$5.49 after the London Metal Exchange Index of prices for six industrial metals including copper and aluminum fell 1.8 percent yesterday after Bernanke gave testimony to Congress.

Ratings Review

The Federal Reserve’s Bernanke said yesterday the central bank isn’t currently ready to embark on a third round of government bond-buying to stimulate the economy.

Investor concern increased about the U.S. economy today after Standard & Poor’s said there was at least a 50 percent chance it will lower the U.S. AAA credit rating within 90 days, citing the risk of a stalemate enduring beyond any near-term agreement to raise the nation’s debt ceiling. Moody’s Investors Service put the U.S. credit rating on review July 13 for a downgrade. The U.S. has held the top rating since 1917.

Even as the ratings companies warned of downgrades, U.S. Treasuries were still set for a weekly gain and three auctions this week attracted higher-than-average bidding as the worsening European debt crisis spurred investor demand for safer assets.

Ten-year Treasury yields were little changed at 2.95 percent, after falling to this year’s low of 2.81 percent earlier this week. The 10-year average is 4.06 percent.

Yearly Loss

The Hang Seng Index has dropped 5 percent this year, on concern China’s tightening measures, and Europe and U.S. debt will hamper global economic growth. Shares in the gauge traded at 11.8 times forecast earnings, compared with about 14.4 times at the end of last year, according to data compiled by Bloomberg.

Among stocks that rose, Changsha Zoomlion increased 0.9 percent to HK$16.06 after saying first-half net income may have risen by as much as 110 percent from a year earlier. Stella International Holdings Ltd., a footwear maker, climbed 1.8 percent to HK$20.20 after saying unaudited second-quarter sales gained 23 percent.

International Mining Machinery Holdings Ltd., a maker of coal-mining equipment, surged by a record 17 percent to HK$7.69, according to data compiled by Bloomberg. The stock resumed trading today after being suspended on July 12. Joy Global Inc. agreed to acquire a 41 percent stake of the Chinese company for HK$4.55 billion ($584 million).

Airlines Rise

Airlines increased after the Shanghai Daily said Chinese airlines’ first-half traffic increased 9.8 percent from a year earlier to 139 million passengers, citing the Civil Aviation Administration of China.

China Southern Airlines Co., Asia’s largest carrier by passenger numbers, jumped 6.7 percent to HK$4.93, while China Eastern Airlines Corp., the No. 2, advanced 2.8 percent to HK$3.71.

Futures on the Hang Seng Index slid 0.6 percent to 21,844. The HSI Volatility Index, the benchmark gauge for Hong Kong stock options, rose 2.8 percent to 21.43, indicating options traders expect a swing of 6.1 percent in the Hang Seng Index in the next 30 days.

Contact the reporter on this story: Kana Nishizawa in Tokyo at +81-3-3201-8374 or knishizawa5@bloomberg.net

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