[HONG KONG] Hong Kong stocks slumped, trimming the benchmark index's best quarterly performance in seven years, as concern about the health of Germany's biggest lender spurred declines in financial companies.
The Hang Seng Index dropped 1.3 per cent as of 10.17am local time, paring its gain since the end of June to 13 per cent.
Bank of Communications Co led a measure of financial companies lower, sliding 2.8 per cent.
Property companies fell for a second day, with China Resources Land Ltd. falling to a two-week low.
A measure of Chinese companies traded in Hong Kong retreated 1.3 per cent, while the Shanghai Composite Index was little changed.
Deutsche Bank AG shares dropped to a record low in the US after Bloomberg News reported that some hedge funds were moving to reduce their financial exposure to the bank, which has been struggling to convince investors that it has the funds to deal with legal bills tied to past misconduct.
The Hang Seng Index has rallied the most in Asia this quarter as inflows swelled via an exchange link with Shanghai and traders scaled back bets for higher US borrowing costs.
Mainland markets will be shut all next week for holidays, while the connect is closed until Oct 11.
"If there's no liquidity coming from China that means the market may weaken a little bit so it may test on the downside," said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd.
"Valuations are getting expensive."
The Hang Seng Index dropped to 23,442.97. The gauge trades at 12.7 times reported earnings, approaching the highest level in five years.
Casino operator Sands China Ltd rose the most in the index this quarter with a more-than 30 per cent rally, while technology giant Tencent Holdings Ltd accounted for the largest portion of the measure's gain.
The Hang Seng China Enterprises Index has gained 11 per cent this quarter, while the Shanghai Composite has eked out a 2.3 per cent increase.
Net buying of Hong Kong shares through a link with Shanghai totaled 58.7 billion yuan (S$11.97 billion) this month, compared with purchases of less than 1.75 billion yuan in the other direction.
A manufacturing index by Caixin Media and Markit Economics rose to 50.1 for September from 50 last month to match analyst estimates.
In Hong Kong, data on retail sales are due after the market close. Analysts expect August sales by value plunged 6.9 per cent from a year earlier in the 17th month of declines, as the city saw fewer visitors.
The yuan was little changed before it joins the International Monetary Fund's Special Drawing Rights (SDR) this Saturday. The SDR, created in 1969, gives IMF member countries who hold it the potential right to obtain any of the currencies in the basket - currently the dollar, euro, yen and pound - to meet balance-of-payments needs.
MSCI Inc said it is continuing to monitor China's mainland stock market for potential inclusion in its global indexes and has seen some positive developments.
The start of a stock trading link between Hong Kong and Shenzhen could help address repatriation issues international investors face, while the number of suspended mainland shares has dropped marginally, the index provider said in a statement Thursday.