Hong Kong stocks plummeted 8.17 percent to a 28-month low on concerns of an economic recession, but analysts expected last night's rate cuts by central banks to spark a short-lived rally.

The US Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point, and the mainland's central bank lowered its key one-year lending rate by 0.27 percentage points.

Castor Pang, a strategist at Sun Hung Kai Financial, expected the HSI to open high in the morning, but said the rebound will be temporary.

Investors experienced a giant drop in the stocks recently, and they will grab any chance to unload their shares, Pang said.

"I won't be surprised if the index turns around in a single day," Pang said, noting that the rate cuts indicated worsening economic conditions.

The benchmark Hang Seng Index (HSI) closed down 1,372.03 points yesterday at 15,431.73, its lowest level since June 2006.

The index opened down 4.14 percent, or 695.78 points lower; it dropped below 16,000 points shortly after the day began. The index pared early losses in the afternoon session after the British government announced a 50 billion pound bailout plan, but the panic selling pick up again, sending the index to end at its lowest point of the day.

Mainboard turnover was HK$77.8 billion, as compared with HK$47.33 billion on Monday. Tuesday was a public holiday in Hong Kong.

HSBC, Europe's biggest bank, declined 3.9 percent to HK$115.80, and Bank of East Asia slipped 9.28 percent to HK$20.05, its worst close since May 2004.

Shares in property developers slumped on the sluggish residential market, and the property sub-index plunged 8.59 percent.

The China Enterprises Index plummeted 11.46 percent to 7,452.74 - a two-year low. Energy and other resource stocks were mauled by concern over slowing demand, with PetroChina falling 14.05 percent and CNOOC slumping 14.25 percent.

Mainland financials joined the slump. ICBC fell 7.99 percent, and China Construction Bank plummeted 12.36 percent.

Patrick Shum, chief portfolio strategist at Karl Thomson Securities, said the coordinated rate cuts may spur the HSI to rally this morning, but he noted that "it depends on the overnight performance of the US stocks".

He was skeptical about the effect of the rate-trimming move, saying: "The interbank market remains tight; it is a problem of lacking confidence". Investors are likely to cash in their shares if the market rebounds.

(HK Edition 10/09/2008 page2)