Hang Seng Index (HSI) fell the most in more than 18 months on Friday and its volatility index had the biggest surge on record, as exporters and commodity stocks tumbled amid a global equity rout triggered by signs the world economy is weakening.

The HSI dropped 4.3 percent to 20946.14 at the close, its biggest decline since November 2009. All 46 stocks on the measure fell. The gauge slid 6.7 percent for the week, which is the steepest drop since the period ended March 6, 2009. The Hang Seng China Enterprises Index sank 3.9 percent to 11434.59.

Futures on the HSI dropped 4.4 percent to 20741.

The HSI Volatility Index, the benchmark gauge for Hong Kong stock options, jumped 56 percent to 33.87, the most since data began on the measure in 2001. The reading indicates options traders expect a swing of 9.7 percent in the HSI in the next 30 days.

"A lot of investors now are using options and derivatives to protect their downside," said Cedric Ma, senior investment strategist at Convoy Asset Management Ltd, which oversees theequivalent of about $260 million in Hong Kong. "The US has cut spending, Europe is under an austerity policy and China has been softening in the last few months, so where is the economic growth going to come from? That's the big question mark for investors."

US options prices soared the most in four years as investors scrambled to buy protection against greater stock-market losses.

Li & Fung sank 4 percent to HK$12.04. Techtronic fell 7.3 percent to HK$7.83, and Yue Yuen Industrial Holdings Ltd declined 4.8 percent to HK$23.60.

Esprit tumbled 7.6 percent to HK$19.68. HSBC Holdings Plc, Europe's biggest lender by market value, slid 4.5 percent to HK$72.70, the largest drag on the HS.

Hutchison Whampoa Ltd tumbled 8.3 percent to HK$82.90. The company said first-half profit increased to HK$46.3 billion ($5.93 billion) from HK$6.3 billiona year earlier, missing the HK$51 billion median estimate of five analysts' estimates in a Bloomberg News survey.

Cosco Pacific Ltd tumbled 8.1 percent to HK$10.22. China Merchants Holdings International Co plunged 6.8 percent to HK$24.05.

"The main reason behind the slump in the port sector is investors' concern over the US spending and economic outlook," said Lawrence Li, a Shanghai-based analyst with UOB-Kay Hian Holdings Ltd. "There will be a large-scale down-grading of the sector soon."

Futures on the Standard & Poor's 500 Index fell 0.4 percent on Friday. In New York on Thursday, the S&P 500 tumbled 4.8 percent to an eight-month low of 1,200.07, erasing its 2011 gain. The Stoxx Europe 600 Index sank 3.5 percent to 243.16 in London on Thursday, the biggest decline since May 2010.

European Central Bank President Jean-Claude Trichet said policy makers will offer banks in the region additional cash to ease tensions in financial markets.

Bloomberg

(HK Edition 08/06/2011 page2)