Hong Kong shares gave up its two-day rally by tumbling 4.77 percent yesterday, as economic fears sapped enthusiasm over Beijing's stimulus package and market is worried that the global economic downturn will increase banks' bad loans.

The benchmark Hang Seng Index slid 4.77 percent, or 703.73 points, to close at 14,040.9, with the mainboard turnover amounting to HK$54.3 billion. The index once rose 0.7 percent after the statistics bureau on the mainland announced a 4 percent surge in consumer prices in October from a year earlier.

Conita Hung, head of research at Delta Securities said the slump in HSBC and other blue-chip shares significantly weighed down the index yesterday.

"The central government's stimulus package may not further support the index this week, while the shares performance will much more depend on the US economic figures," Hung said.

She expects the benchmark index to fluctuate between 13,500 and 15,300 this week, while it may encounter some pressure at the level of 15,000.

Europe's largest bank HSBC Holdings slid 4.66 percent, or HK$4.3, to end at HK$88 yesterday, after the bank set aside $4.3 billion, or HK$33.3 billion, to cover bad loans in the US, a surge of $700 million, or HK$5.43 billion, from the previous quarter.

Hung said HSBC may shed HK$82 to HK$83 in the coming months, as the market predicts the bank's fourth-quarter results may turn sour due to the provision for bad loans in the US, which may also drag its annual net profits in 2008.

Standard Chartered Bank also dropped 6.72 percent, or HK$8, after the bank said on Monday that its local subsidiary in Brazil agreed to acquire some fixed assets from Lehman Brothers Brazil. The share ended yesterday's trading at HK$111.

Mirroring the slump in the benchmark index, the China Enterprise Index of top locally listed mainland companies nosedived 3.7 percent to 7,136.92.

Mainland banks and construction-related stocks dropped from their earlier gains, as investors were skeptical about their earnings prospects with the cooling mainland economy.

Redford Securities head of research Kenny Tang said it may take some time for the central government to implement its 4-trillion yuan stimulus plan, as well as to reflect its positive impact on the H-shares. "At the moment, investors are still being very cautious. Therefore, the H-share may not show a drastic rebound," Tang said.

(HK Edition 11/12/2008 page2)