Hong Kong shares fell 2.5 percent on Friday with financials joining the global rout in bank stocks, but consumer products supplier Li & Fung bucked the downtrend on two favourable broker recommendations.
HSBC was down 1.8 percent at HK$55.10, perched right above its 10-year low of HK$54.90, hit in January after its Wall Street peers slumped to a 17-year low on fears that the U.S. government may nationalise big banks.
The benchmark Hang Seng Index was 321.49 points lower at 12,701.87 by midday.
Most analysts see 12,700 points as a crucial test-level for the main index and expect a small rally next week if the index can defend that level.
"With all the bad news from the U.S., it's another day when investors just don't want to enter the market," said Conita Hung, head of equity markets with Delta Asia Financial.
"But the index may still stay above its resistance level because of the support from China," she said,
China announced further government aid to the industrial sector on Thursday as a part of its ongoing effort to stave off the global economic downturn.
Turnover edged up to HK$22.7 billion from midday Thursday's HK$20.5 billion.
Local property stocks dropped on expectations that developers will slash prices on long-awaited new launches, including luxury residential apartments which were seen as fairly resilient to the current economic downturn.
Slumping rentals in the commercial property market, as Hong Kong reels under a recession and copes with increasing job losses, have also put pressure on the sector.
"Expatriates are one of the key sources of demand for luxury rental properties. With the financial industry aggressively laying off staff coupled with an increase in new supply, we believe luxury rents would continue to underperform," said Deutsche Bank analyst Ken Yeung.
Top developer Sun Hung Kai Properties fell 3.7 percent while Asian billionaire Li Ka-shing's Cheung Kong Holdings dropped 3.3 percent.
The China Enterprises Index of top mainland firms was down 3 percent at 7,047.21 after outperforming the main index in recent days.
A small correction in gold prices, still holding close to a seven-month high, gave investors an excuse to lock in gains on gold mining stocks which have been on the rise in recent weeks amid the markets' flight to safety.
Zijin Mining which has risen close to 20 percent since the beginning of February slid 7.2 percent on Friday while Zhaojin Mining dropped 5.8 percent.
Consumer products supplier Li & Fung bucked the downtrend on broker recommendations from two investment banks.
Li & Fung, the only blue chip in the black on Friday, was up 3.1 percent at HK$16.40 after Merrill Lynch upgraded the stock to buy from underperform while Goldman Sachs reiterated its conviction buy rating on the stock.
Merrill Lynch raised its target price on the stock by 48 percent to HK$20.44 while revising its earnings estimates for 2009-10 up 10 percent to 20 percent to factor in larger-than-expected cost savings.
Chaoda Modern Agriculture dropped 7.1 percent to HK$5.22 after it announced a HK$391 million ($50.42 million) new share sale to chairman Kwok Ho at HK$5 per share, an 11 percent discount to its closing price on Thursday.
Net proceeds raised would be used to fund expansion of operations and acquisition of farmland.
(Reporting by Parvathy Ullatil; Editing by Jacqueline Wong)
(parvathy.ullatil@thomsonreuters.com; +852 2843-6415))
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