HK shares fall on US recession fears

HONG Kong stocks fell, led by HSBC Holdings Plc and Li & Fung Ltd after United States employment and services industry reports stoked concern the world's biggest economy is headed for recession.

HSBC, which gets about a fifth of its earnings from North America, slid to a two-year low. Sino Land Co led gains among property stocks as the odds for a half-percentage point rate cut in the US firmed after the latest economic reports.

"Investors are cautious because Hong Kong stocks may be impacted" by a slowdown in the US economy, said Renault Kam, who helps manage US$6 billion of Asia securities at Atlantis Investment Management in Hong Kong. "We avoid export stocks that rely on the US."

The Hang Seng Index dropped 340.20, or 1.2 percent, to close at 27,179.49. The measure pared an earlier slide of as much as three percent as real estate stocks rallied in the afternoon session. The Hang Seng China Enterprises Index, which tracks 43 "H shares" of Chinese companies, lost two percent to 15,590.74, Bloomberg News said.

Chinese shares such as China Life Insurance Co declined after the country's central bank said it will take more steps this year to cool inflation.

Economic reports last week fueled concern that the US economy is slowing, with manufacturing declining the most in five years. The Hang Seng Index has fallen 2.3 percent so far in 2008, the worst start to a year since 2005.

HSBC, the Hang Seng Index's biggest constituent, dropped HK$2.30, or 1.8 percent, to HK$127.80 (US$16.37), the lowest since February 13, 2006. North America accounted for 17 percent of HSBC's pretax profit in the first half of last year.

Li & Fung, which made more than 70 percent of its 2006 sales in the US, slumped HK$2.05, or 6.6 percent, to HK$28.95, the most since May 17, 2004. Foxconn International Holdings Ltd, the world's largest contract maker of mobile phones, dropped HK$1.02, or 6.2 percent, to HK$15.54.

US payrolls rose by 18,000, capping the worst year for job creation since 2003, according to Labor Department figures released last Friday. The jobless rate rose to five percent from 4.7 percent in November, while the Institute for Supply Management said growth in US service industries cooled last month.

Sino, Hong Kong's fifth-biggest developer by market value, gained 80 cents, or 2.9 percent, to HK$28.45.