HONG KONG (Thomson Financial) - Hong Kong shares ended the morning session firmer on Thursday, interrupting a two-day decline, as investors bought export-related stocks on hopes the Federal Reserve would not raise interest rates this year.
The Fed on Tuesday kept its key rate unchanged at 2 percent and signalled rates may remain steady as the economy faces the risk of a further slowdown due to the housing and financial slump.
'Interest rates in the U.S. will remain flat for the rest of the year because the Fed is frightened by recession rather than by inflation,' said Peter Lai, director at DBS Vickers. 'While it (steady U.S. rates) will continue to support the market, there is some selling pressure on some stocks like Cathay Pacific, which keeps the market from rising further.'
The Hang Seng Index added 129.76 points or 0.6 percent to end the morning at 22,079.51, off a high of 22,424.54. Local financial markets were closed on Wednesday due to a severe tropical storm warning.
Fashion retailer Esprit Holdings, which has outlets overseas, rallied 4.1 percent to HK$83.30. Li & Fung, which supplies consumer goods to U.S. retailers like Wal-Mart, was up nearly 3 percent at HK$24.95.
Expectations that the mainland central bank will slow the appreciation of the yuan, the nation's currency, to boost growth also supported exporters.
After rising 2 percent at the opening, gains narrowed after a selloff in Cathay Pacific Airways, which slid 4.6 percent to HK$14.06.
Investors sold the stock after the company reported a HK$663 million loss, its first in five years, reversing a HK$2.6 billion net profit posted a year earlier. Three analysts in a Reuters poll predicted a HK$913 million profit for the airline.
Index heavyweight HSBC Holdings recovered from a 2.2 percent drop on Tuesday and rose nearly 2 percent to HK$129.00. Investors sold the stock after the lender reported a 28 percent drop in first-half profit .
HSBC's unit Hang Seng Bank, which posted a 2.2 percent rise in January-June profit, gained 2.3 percent to HK$158.00.
Cathay's loss highlighted the risks that the airline industry is facing from higher oil prices, which reached a peak of more than $147 a barrel on July 11.
The Hong Kong airline is considering raising its ticket prices to help offset rising fuel costs. Deutsche Bank has cut its rating on the stock to 'hold' from 'buy' and its earnings forecast for the year by 81 percent. Morgan Stanley, meanwhile, trimmed its price target on the airline to HK$12 from HK$13.
Cathay's parent Swire Pacific fell 1.1 percent to HK$78.15.
Other airlines also slumped. The mainland's top carrier China Southern Air lost 6.1 percent at HK$3.07, while smaller rival China Eastern Air tumbled almost 9 percent to HK$2.26.
Lenovo, China's largest PC maker, fell 1.7 percent to HK$5.29 ahead of the company's first-quarter to June results announcement later in the day.
China's top lender Industrial and Commercial Bank of China was unchanged at HK$5.74. The lender said Wednesday that theFederal Reserve Board has approved its application to establish a branch in New York and will be allowed to engage in wholesale deposit-taking, lending, trade finance and other banking services.
China Shipping Container Lines Co. retreated 5.8 percent to HK$2.13 after the No.2 container shipping line on the mainland announced a deal to acquire assets from its parent.
Other shippers were also lower on higher oil prices and falling demand due to the global economic slowdown. China Shipping Development tumbled 5.8 percent to HK$20.95 and China Cosco slid 6.5 percent to HK$15.48.
Hong Kong's fifth-largest lender Bank of East Asia extended its losses and dropped a further 2.1 percent to HK$32.50. The bank plunged 8.3 percent on Tuesday after announcing a worse-than-forecast 52 percent decline in first-half profit.
($1 = HK$7.80)
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