The Hang Seng Index (HSI) fell by the most in more than a month, led by banks and developers. Commodity producers declined on lower oil and metal prices.
The HSI fell 1.2 percent to 23,469.38 at the close. About three stocks declined for every one that rose on the 45-member gauge.
"In a volatile market, funds tend to make their way into the financial sector, so once a correction takes place, money pulls out first from this sector," said Castor Pang, research director at Cinda International Holdings Ltd.
HSBC sank 2.5 percent to HK$80.85, the largest drag on the HSI. Five Taiwanese banks have sued HSBC, claiming Europe's biggest lender aided a fraud by deceased financier Danny Pang's PEMGroup that caused them more than $500 million in damages.
Ping An Insurance (Group) Co dropped 0.7 percent to HK$82.90 after the Financial Times reported that China's second-largest insurer is among major institutional investors from the nation interested in obtaining large stakes in AIA Group Ltd, the Asian business of American International Group Inc.
A measure of banks had the biggest drop on the HSI among its four industry groups, followed by property developers.
Hong Kong Monetary Authority Chief Executive Norman Chan said the city will be able to restrain bank credit to specific sectors.
Sun Hung Kai dropped 1.8 percent to HK$134.60. Cheung Kong (Holdings) Ltd slid 1.6 percent to HK$119.70.
Commodity producers also declined. Cnooc fell 1.5 percent to HK$16.16. PetroChina Co sank 2.2 percent to HK$9.88.
Jiangxi Copper Co lost 5.7 percent to HK$21.55. Zijin Mining Group Co tumbled 4.7 percent to HK$7.46 after the company said it faces legal claims in connection with a fatal dam collapse at a tin mine.
Futures on the HSI dropped 1.1 percent to 23,488.
(HK Edition 10/19/2010 page3)