HONG KONG (Thomson Financial) - Hong Kong shares ended a volatile morning session flat on Friday, with investors discouraged by Wall Street's decline overnight on fresh worries about fallout from the subprime mortgage crisis.
Investors dumped U.S. shares after insurer American International Group unexpectedly posted a loss in the second quarter as it wrote down losses from its subprime-related investments.
Wal-Mart's warning about sales further dampened Wall Street's mood as it heralded a further decline in U.S. spending, which accounts for more than two-thirds of the U.S. economy.
'Obviously a backdrop of a global economic slowdown and weak corporate earnings is not conducive to the market,' said Howard Gorges, vice chairman at South China Securities.
'There is a lot of bad news that is bedeviling the market.'
The Hang Seng Index was up 3.26 points or 0.01 percent to end the morning at 22,107.46, off a high of 22,230.55 and a low of 21,980.63.
The local stock market opened down 0.5 percent following Wall Street's weakness, but turned higher as investors hunted for bargains.
Utilities and developers were among the top gainers on hopes for better earnings prospects.
Tycoon Li Ka-shing's Hong Kong Electric Holdings gained 2.6 percent to HK$48.55. The utility company reported this week that its first-half net profit rose 18 percent from a year earlier.
Hong Kong & China Gas jumped 2.3 percent to HK$17.54.
'In general, utilities are favoured under an uncertain environment,' said Gorges.
Hang Lung Properties, one of the top local developers, advanced 3.1 percent to HK$23.25, while Li's Cheung Kong Holdings added 1.7 percent to HK$110.60.
Properties gained after the Federal Reserves kept its key rates unchanged on Tuesday and hinted that there won't be any rate hike this year.
Banks were mostly lower following a slump in their U.S. counterparts. Index heavyweight HSBC Holdings lost 0.7 percent to HK$128.00 and China Construction Bank was down 0.7 percent at HK$6.79.
Bank of East Asia continued its decline after this week reporting a 52 percent drop in profit in the first half due to losses in subprime-related securities. The stock fell almost 1 percent to HK$32.45.
Chinese PC-maker Lenovo Group was up 4.4 percent at HK$5.47 after reporting a 65 percent jump in its first quarter to June net profit.
Shipping stocks continued their slide for a fifth day after the Baltic Dry Index, a measure of freight rates, fell 4.4 percent overnight, its steepest decline in nearly two months.
Asia's largest container shipping line China Cosco Holdings tumbled 8.3 percent to HK$14.30, while the mainland's largest oil tanker operator China Shipping Development was 6.1 percent lower at HK$19.26.
Hong Kong-based shipper of iron ore and coal Pacific Basin Shipping Ltd shed nearly 4 percent to HK$9.69.
Oil refiner China Petroleum and Chemical Corp (Sinopec) rose 2.2 percent to HK$8.34 and PetroChina, which has both refining and production operations, gained 1 percent to HK$10.32.
Oil held steady at near $120 a barrel on Friday, down nearly 20 percent from a peak on July 11.
Chinese airlines extended their decline, with investors still bearish about the industry after Hong Kong's Cathay Pacific this week reported a loss in the January-June period, its first in five years.
Flag carrier Air China declined 4.8 percent to HK$3.78 and China Eastern Airlines dropped 8.7 percent to HK$2.10. Top carrier China Southern Airlines was down 5.6 percent at HK$2.87.
Stock market operator Hong Kong Exchanges and Clearing lost 1.2 percent to HK$106.20.
($1=HK$7.80)
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