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Hong Kong Stocks Pare Longest Monthly Win Run Since 2009

Jan. 31 (Bloomberg) -- Hong Kong stocks dropped, with the city’s benchmark index falling from its highest level since April 2011, after the U.S. economy unexpectedly shrank in the fourth quarter.

Li & Fung Ltd., a supplier of toys and clothes to retailers including Wal-Mart Stores Inc., decreased 3.7 percent, headed for its lowest close since July 2009. China Shipping Development Co. dropped 4 percent after saying full-year profit will fall more than 90 percent. China Unicom Hong Kong Ltd. rose 1.6 percent after the nation’s second-largest mobile-phone company said net income in 2012 probably rose more than 50 percent.

The Hang Seng Index fell 0.4 percent to 23,729.53 as of the 4 p.m. close in Hong Kong, with more than two shares falling for each that rose. The gauge climbed 4.7 percent this month, its fifth monthly advance and the longest such streak since July 2009, after the U.S. Federal Reserve embarked on a third round of quantitative easing in September and amid optimism China’s economy will continue its recovery.

“Markets have rallied quite high from where they were six months ago,” said Jason Teh, who helps manage about $4 billion at Investors Mutual Ltd. in Sydney. “Hopefully we will see a reality check in terms of what the economy is saying, as growth is not all smooth sailing. In the longer term it all really comes down to earnings growth. That always underpins the stock market.”

Trading volume on the Hang Seng Index was 23 percent above the 30-day moving average, according to data compiled by Bloomberg. Shares on the gauge traded at 11.5 times estimated earnings, compared with 13.6 for the Standard & Poor’s 500 Index.

Bull Market

The Hang Seng China Enterprises Index of mainland companies slipped 0.3 percent to 12,130.59, paring its increase for the month to 6.1 percent. The Shanghai Composite Index added 0.1 percent, extending a bull-market rally that has seen the gauge surging 22 percent since Dec. 3.

Futures on the S&P 500 Index were little changed. The U.S. benchmark gauge retreated 0.4 percent yesterday as the Federal Reserve said it will maintain its program to buy securities after the economy unexpectedly shrank in the fourth quarter.

The Fed said yesterday it will keep purchasing securities at the rate of $85 billion a month as the economy paused because of temporary forces including bad weather.

Li & Fung, which gets about 60 percent of sales from the U.S., dropped 3.7 percent to HK$10.90. Techtronic Industries Co., the maker of Ryobi power tools that counts the U.S. as its biggest market, lost 0.6 percent to HK$15.70.

Sluggish Demand

China Shipping Development dropped 4 percent to HK$4.27. The Chinese carrier of oil and coal said it expects full-year profit to fall more than 90 percent as freight rates drop due to sluggish demand and oversupply of shipping capacity in the industry.

Among stocks that advanced, China Unicom gained 1.6 percent to HK$12.46 after the nation’s second-largest mobile-phone company said 2012 net income probably increased more than 50 percent from a year earlier as it expanded its 3G and broadband user base.

Datang International Power Generation Co. jumped 6.9 percent to HK$3.41, the highest close since October 2010, after the Chinese power utility projected profit in 2012 more than doubled.

The Hang Seng Volatility Index rose 1.4 percent to 13.50, indicating options traders expect a swing of 3.9 percent in the next 30 days. Futures on the Hang Seng Index slipped 0.1 percent to 23,776.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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