Hong Kong stocks give up early gains amid Fed rate uncertainty

[HONG KONG] Hong Kong stocks surrendered early gains and closed lower on Tuesday, with some investors taking advantage of the brief rebound to reduce holdings as uncertainty over US monetary policy lingered.

The Hang Seng index fell 0.3 per cent to 23,215.76 points, while the China Enterprises Index lost 0.9 per cent, to 9,571.06 points.

The market slumped more than 3 per cent on Monday, posting its biggest single-day fall in seven months, on fears the US Federal Reserve would raise rates as early as next week.

Those concerns eased somewhat overnight after the Federal Reserve's Board Governor Lael Brainar said that she wanted to see a stronger trend in US consumer spending and evidence of accelerating inflation before the central bank raises rates.

But investor confidence remained fragile.

Pointing to the risks of a further correction, UBS strategist Lu Wenjie described the strong rally in Hong Kong stocks in recent weeks - which has been fuelled by inflows from investors in mainland China - as "fragile" and "liquidity-driven".

"For the next one to two quarters, we think the risk is to the downside as global investors may exit the hunt for yield/carry trade in emerging markets as the US Fed's talk turns more hawkish," Lu wrote in his latest strategy report.

Most sectors in Hong Kong fell, with raw material stocks leading the decline.

REUTERS