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Hong Kong Stocks Retreat, Paring Hang Seng Index’s Weekly Gain

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July 12 (Bloomberg) -- Hong Kong stocks fell, paring a third weekly advance for the city’s equity benchmark, after yesterday recording their biggest single-day gain since January.

Daphne International Holdings Ltd., the footwear maker that sells Aldo and Aerosoles shoes in China, slumped 13 percent after saying it expects first-half profit to fall. New China Life Insurance Co., the nation’s third-largest life insurer, fell 6.4 percent as Zurich Insurance Group AG sells shares in the company at a discount. Railway-related companies jumped.

The Hang Seng Index dropped 0.8 percent to 21,277.28 as of the 4 p.m. close in Hong Kong, with about four companies falling for each that rose. The index is headed for a 2 percent increase for the week, its third straight gain. Volume was 25 percent less than its 30-day intraday average. The Hang Seng China Enterprises Index dropped 1.2 percent to 9,433.66 after yesterday notching its daily increase in six months.

“Investors are still focused on potential downside risk of the Chinese economy to see whether there will be any changes to the macro-economic policy in favor of growth stimulus,” said Ben Kwong, chief operating officer at brokerage KGI Asia Ltd. “After a strong rebound yesterday investors tend to be a bit cautious.”

The Hang Seng Index posted its biggest monthly decline in a year in June, slumping 7.1 percent as China’s money-market rates surged to a record and after Fed Chairman Ben S. Bernanke said policy makers may start dialing down stimulus if the U.S. economy shows sustained improvement.

H Shares

The Hang Seng China Enterprises Index, also known as the H-share index, fell as much as 27 percent from a Feb. 1 high through June 27, meeting some investors’ definition of a bear market. The measure traded at 1.15 times the value of net assets yesterday, compared with its five-year average of 1.79.

Shares rallied yesterday on speculation China will take steps to boost growth and after Bernanke said the U.S. needs to maintain stimulus for the foreseeable future.

China’s statistics bureau is scheduled to release second-quarter economic data on July 15. Growth may have slowed to 7.5 percent from 7.7 percent in the first three months, according to the median estimate of economists in a Bloomberg survey. June figures on industrial output, fixed-asset investment and retail sales will be released on the day.

Trade Slows

China’s trade unexpectedly declined in June in a sign weakness in global and domestic demand will intensify the nation’s economic slowdown. Exports fell 3.1 percent from a year earlier, the government said this week, compared with an estimated 3.7 percent gain in a Bloomberg survey. It’s the biggest decline since a 14 percent slump in October 2009.

Shares on the benchmark Hang Seng Index traded at 10.2 times estimated earnings yesterday, compared with 15.2 times for the Standard & Poor’s 500 Index and 13.2 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Resources and energy companies lead declines this year on the Hang Seng Composite Index, the city’s broadest equity measure. The gauge fell 6.1 percent since the end of December, with information technology, utilities and services the only sectors to gain among 11 industry groups.

Daphne tumbled 13 percent to HK$5.02, the steepest drop on the Hang Seng Composite Index, after saying it expects first-half profit to decline as sales growth slows and margins narrow. Weak consumer sentiment, poor weather conditions and an outbreak of avian flu in eastern China contributed to slack second-quarter performance, the company said.

New China Life dropped 6.4 percent to HK$22.50. Zurich Insurance is selling 97.5 million New China Life shares at HK$22.50 each, according to a term sheet obtained by Bloomberg News. That compares with yesterday’s close of HK$24.05.

Week’s Movers

Futures on the S&P 500 slipped 0.1 percent after rising 1.4 percent yesterday in New York.

Every industry on the Hang Seng Composite Index advanced this week, led by industrial goods and energy companies amid speculation China’s government will act to shore up growth if it believes the economy is slowing too much.

Four of the top five gains on the Hang Seng Composite Index today were railway-related shares amid speculation they will benefit from the resumption of a bidding process to supply the government, Li Kun, an analyst at Northeast Securities Co. said. CSR Corp., the country’s biggest maker of rolling stock, jumped 7.1 percent to HK$4.70 while China Railway Construction Corp., a Beijing-based track builder, surged 9.8 percent to HK$6.94. China Railway Group Ltd. added 8.8 percent.

China, which halted the bidding last year, may start taking bids to supply bullet trains in the second half, Shanghai Securities News reported, citing an unidentified rail transportation equipment company.

Hang Seng Index futures slid 1 percent to 21,209. The HSI Volatility Index retreated 1.4 percent to 21.20, indicating traders expect a swing of 6 percent for the equity benchmark in the next 30 days.

To contact the reporter on this story: 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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