Hong Kong Stocks Decline, Paring Weekly Gain; Banks Lead Drop

By Hanny Wan and Bob Chen

July 25 (Bloomberg) -- Hong Kong stocks fell, paring the benchmark's weekly gain, on renewed concern credit-market losses will widen and a slowing global economy will damp earnings.

Bank of East Asia Ltd. declined the most in more than a week after National Australia Bank Ltd., the country's largest lender, set aside more money against possible losses in credit investments. Aluminum Corp. of China Ltd., the nation's biggest producer of the metal, led commodity stocks lower on concern demand for raw materials will fall.

``Global sentiment turned more negative; it's to do with the banking sector,'' said Khiem Do, who helps oversee about $11 billion of Asian equities at Baring Asset Management (Asia) Ltd.

The Hang Seng Index lost 446.68, or 1.9 percent, to 22,641.04 at the 12:30 p.m. break, with financial stocks accounting for 42 percent of the drop. The drop pared its advance this week to 3.5 percent. The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese companies, slumped 3.2 percent to 12,343.93.

Hong Kong's main Hang Seng measure has lost 19 percent this year as soaring raw-material prices and more than $467 billion of writedowns and credit losses at the world's largest financial institutions threaten to slow global economic growth.

The U.S. housing slump will cost banks and brokerages $1 trillion, Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co., said yesterday. A separate industry report showed that sales of previously owned U.S. homes declined more than estimated last month to the lowest in a decade.

Bank of East Asia, which said in February it booked a $140 million loss on $700 million of collateralized debt obligations in the second half of 2007, lost 3.1 percent to HK$37.90, its worst drop since July 15. Bank of China Ltd., which has reported $1.5 billion in writedowns on subprime-related investments, fell 1.1 percent to HK$3.53.

Chalco Retreats

National Australia Bank, the country's biggest, set aside A$830 million ($795 million) more for CDOs. The provision is in addition to the A$181 million it posted in March, the bank said.

Chalco, as Aluminum Corp. is known, retreated 3.8 percent to HK$8.08, set for its lowest close since March 30, 2007. China Shenhua Energy Co., the nation's biggest coal producer, plunged 6.3 percent to HK$29.25, adding to a 4.9 percent slump yesterday and making it the largest percentage loser on the Hang Seng Index today. China Coal Energy Co., the No. 2, retreated 5.1 percent to HK$13.72, having lost 3.6 percent yesterday.

China yesterday ordered a cap on prices of coal to help power producers cope with costs. Prices at the country's biggest coal ports can't rise beyond the June 19 levels, the National Development and Reform Commission said yesterday.

Five stocks declined on the 43-member Hang Seng Index for each that climbed. July futures slipped 1.8 percent to 22,703.

The following stocks rose or fell. Stock symbols are in brackets after company names.

Datang International Power Generation Co. (991 HK), a unit of China's second-biggest power producer, lost 37 cents, or 7.3 percent, to HK$4.71, its worst drop since June 10. The company said yesterday it expected first-half profit to fall by more than 70 percent.

New World Development Co. (17 HK), the Hong Kong developer controlled by billionaire Cheng Yu-tung, lost 44 cents, or 2.8 percent, to HK$15.46, its largest decline since July 15. The Hong Kong stock exchange's listing division found that New World staff selectively informed several investment analysts of the company's interim profit figures prior to its earnings announcement in March 2001, the bourse said yesterday.

To contact the reporters on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.