Hong Kong stocks dropped the most in two weeks, tracking the mainland markets as the fears of inflation deepen following the Sichuan earthquake.

The benchmark Hang Seng Index (HSI) plunged as much as 700.14 points, hitting a day low of 25,042.09 before closing at 25,169.46. It lost 572.77 points or 2.23 percent yesterday.

Dragged by sluggish mainland market, Hang Seng Index drops as much as 700.14 points, hitting a day low of 25,042.09 yesterday. China Daily

The China Enterprises Index of Hong Kong-listed companies, or H shares, dropped 2.74 percent to end at 17.973.60, tracking a more than 4 percent loss in the benchmark Shanghai Composite Index.

Investors unloaded their shares, and mainboard turnover rose to HK$82.8 billion from HK$70.49 on Monday.

The fears of rising inflation on the mainland led to a speculation of further monetary tightening policy. Industrial and Commercial Bank of China dropped 2.77 percent, while Bank of Communications slid 3.29 percent.

Mainland insurer China Life fell 2.26 percent and Ping An lost 1.77 percent, as the companies are expected to pay a huge amount of claims related to the earthquake in Sichuan.

Property stocks also led the blue chip slide. Sun Hung Kai Properties dropped further by 2.57 percent, Sino Land dropped 6.23 percent and New World Development lost 5.21 percent.

Index heavyweight China Mobile plunged 2.9 percent after it reported a slower subscriber growth in April.

Investors are cautious about the soring oil prices, sending Sinopec down 4.35 percent and PetroChina down 3.01 percent.

Gilbert Cheung, director of Hung Sing Securities, said the impact of the earthquake is reflected in the A-share markets, and the Hong Kong stocks followed.

"The HSI is unable to break through the 26,000 points level, a technical revise is likely," said Cheung, adding that the index will find support at 24,200 points level.

Cheung also noted the impact of the earthquake on the mainland insurers. "The amount of claims will be huge," he said, "the A-share market slump will also affect the companies' investment income."

Dickie Wong, a director at Friedmann Pacific Investment, said the high oil price may eat into the companies' earnings that may cast gloom on the stock markets.

Fund may unload their shares, Wong said, but he doesn't agree that there will be some capital flow as the interbank rates still remain quite steady.

He, however, is cautious about the earthquake-related stocks.

"The mainland insurers are relatively affected as they need to pay for the claims," Wong said.

"But on the positive side, coal miners and cement makers will benefit from the quake," he added.

(HK Edition 05/21/2008 page2)