Traders show concerns over the stock market. The benchmark Hang Seng Index ended 663.43 points lower at 17,637.19 yesterday, after being dragged by mainland banking and insurance stocks. AFP

Hong Kong stocks fell 3.63 percent yesterday to close at a 23-month low on worries that more financial institutions could fall victim to the global credit crisis despite the US government's last-minute rescue of AIG.

The benchmark Hang Seng Index ended 663.43 points lower at 17,637.19, dragged down by mainland banks and insurance stocks, including a 7.8 percent drop in Ping An's share price.

Mainland heavyweight ICBC tumbled nearly 10 percent while global lender and Hong Kong heavyweight HSBC fell 2.5 percent.

"Investor confidence is weak and there are concerns over who will get into trouble next," said Steven Leung, sales director at UOB Kay Hian Holdings.

"There is heavy selling of mainland bank stocks on fears that these banks may hold debts issued by Lehman Brothers, said Alfred Chan, chief dealer at Cheer Pearl Investment Ltd.

Lehman filed for bankruptcy protection Monday after failing to find someone to buy it. On the same day, the strains of the credit crisis forced fellow Wall Street investment bank Merrill Lynch into the arms of Bank of America in a $50 billion all-share takeover.

China Merchants Bank was down by 7.7 percent after the bank said it held $70 million in Lehman Brothers. China Construction Bank dived 8.2 percent.

China Unicom rose as much as 11.8 percent after shareholders approved its plan to buy China Netcom, but it retreated to HK$10 at close, up 0.5 percent. Fixed-line operator Netcom closed unchanged at HK$15.10 after hitting HK$16.42 at one point.

The Chinese Enterprises Index fell 6.2 percent to close at 8,665.

In response to the drop of the Hang Seng Index, Financial Secretary John Tsang said the extent is similar to other Asian-Pacific markets.

"It is estimated there will still be turbulence in the markets in the days ahead, so market participants must be prepared to deal with their own risk management," he said.

Tsang stressed that the exchange rate remains stable, saying there is no sign of any large-scale capital outflow from Hong Kong so far. He added the Monetary Authority will provide liquidity if necessary.

Tsang noted that the Securities and Futures Commission has approved the issue of restriction notices on four Lehman Brothers entities in Hong Kong, to protect the interests of the investing public.

Sun Hung Kai Financial Strategist Castor Pang gave a pessimistic view of the future of the Hong Kong stock market, predicting that the HSI will test the 15,000 level in the short run.

"More problems from US financial institutions will surface after the closedown of Lehman Brothers and will severely affect Hong Kong market."

Reuters contributed to the story

(HK Edition 09/18/2008 page3)