Hong Kong shares end morning lower on China bank reserve requirement hike UPDATE

Hong Kong shares end morning lower on China bank reserve requirement hike UPDATE

	Published : Fri, 07 Sep 2007 06:45 By : Agencies Print this Story

HONG KONG (Thomson Financial) - Hong Kong shares finished the morning session lower Friday amid caution after China said it is

raising its reserve requirement for banks for the seventh time this year in a continuing effort to slow

economic growth and curb inflation.

The Hang Seng Index was down 97.97 points, or 0.4 percent, at 23,952.43, after moving

between 23,927.32 and 24,135.24.

'It's quite possible that the Chinese government will continue to control liquidity and may impose other measures to further tighten it,' said KGI Asia Ltd chief operating officer Ben Kwong.

The tightening measure underscores concerns about China's overheating economy 'and that will dampen investor sentiment,' Kwong said.

Shares of China's top three lenders, Industrial and Commercial Bank of China Ltd (ICBC), Bank of China and China Construction Bank (CCB), fell on news of the increase in reserve requirement.

Chinese banks will have to set aside more funds as reserves from Sept 25 after authorities raised the reserve requirement by a half percentage point to 12.5 percent. The increase is expected to cut money supply by about 170 billion yuan, according to media reports.

'While impact would be rather limited, given the high deposits of some of these big banks, it may lower their overall earnings because they will be diverting money from the money market to deposit it with the central bank,' said Paul Lee, an analyst at Tai Fook Securities.

'Given its size, ICBC would likely weather this [better] compared to other banks,' Lee said.

ICBC fell three cents, or 0.6 percent, to 5.06 dollars. China's largest bank by assets plans more

acquisitions in emerging markets overseas, according to media reports.

CCB lost 9 cents, or 1.3 percent, at 6.75 dollars. The country's third-biggest bank by assets is setting up a 4.5 billion yuan financial leasing venture with Bank of America, the South China Morning Post reported Friday.

Bank of China fell 3 cents, or 0.8 percent, to 3.89 dollars. The nation's second-largest bank by

assets said Thursday that consumer loans reached 527.5 billion yuan at end-July, accounting for a 23 percent share of the market.

CNOOC, China's third-biggest oil and gas company, rose 3.6 percent after Morgan Stanley

raised its target price to 10.70 Hong Kong dollars from 9.20 dollars, on optimism higher oil prices would boost its earnings. CNOOC was up 34 cents at 9.86 dollars.

China Mobile declined 1.10 dollars or 1.1 percent to 102.40 dollars. The nation's largest mobile-phone carrier's weighting in the HSI will be cut after market closes Friday.

Bank of Communications extended gains, up 10 cents, or 1.1 percent, at 9.09 dollars. China's seventh-largest bank by assets, will be added into the HSI, becoming its 40th member.

China Oilfield Services was sharply higher amid excitement on news of its plan to issue A-shares in Shanghai, dealers said. The stock was up 1.02 dollars, or 7.2 percent, at 15.26 dollars. It surged 13 percent to a new all-time high of 16.04 dollars earlier.

MTR Corp fell 70 cents, or 3.2 percent, to 21.35 dollars as investors locked in gains after the stock jumped 7 percent Thursday.

Later today, the government will announce foreign exchange reserves for August, while China Communications Construction and Geely Automobile will report first-half earnings.

(1 US dollar = 7.80 Hong Kong dollars)

leonora.walet@thomson.com

lw/ms

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