Hong Kong stocks declined, sending the benchmark Hang Seng Index (HSI) to its lowest level this year, as property developers and raw material producers dropped after the Central Government raised interest rates to curb inflation.

China Resources Land Ltd declined at 3.9 percent. Cnooc Ltd dropped and Jiangxi Copper Co, the nation's biggest producer of the metal, slid at least 2.8 percent on speculation demand for commodities will drop as Beijing steps up efforts to fight inflation.

"We will definitely see further interest rate hikes as the Central Government seeks to stabilize commodity prices and prevent asset bubbles," said Danny Yan, a Hong Kong-based fund manager at Haitong International Asset Management, which oversees $600 million. "That's negative for equities but I don't see too much downside. I'm confident China will be able to engineer a soft landing for the economy."

The HSI dropped 1.4 percent to 23164.03 at the close, its lowest level since Dec 31. All but four stocks on the 45-member gauge declined. The Hang Seng China Enterprises Index sank 2 percent to 12278.60.

The People's Bank of China Tuesday raised the one-year lending rate by a quarter point to 6.06 percent and the one-year deposit rate an equivalent amount to 3 percent. China joined India, Indonesia, Thailand and South Korea in boosting rates this year as Asian policy makers seek to avert economic overheating in the region leading the global recovery.

A Central Government report next week may show consumer prices rose 5.3 percent in January, according to the median estimate in a Bloomberg News survey of economists. That would be the highest rate of increase since July 2008.

China Resources Land sank 3.9 percent to HK$13.36. Agile Property Holdings Ltd, which builds villas and apartments in Guangdong province, dropped 1.7 percent to HK$11.68. Guangzhou R&F Properties Co lost 2.5 percent to HK$11.08. Hang Lung Properties decreased 3.5 percent to HK$31.65.

Industrial & Commercial Bank of China Ltd, the country's biggest lender, slipped 1.4 percent to HK$5.74. Smaller rival China Construction Bank Corp lost 1.5 percent to HK$6.71. Bank of China Ltd decreased 2 percent to HK$3.96.

Cnooc dropped 2.8 percent to HK$16.42. PetroChina Co, the nation's biggest oil producer, declined 3.8 percent to HK$10.54. Jiangxi Copper slipped 2.9 percent to HK$24.80.

Standard Chartered Plc, the UK lender that generates most of its earnings in Asia, fell 1.3 percent to HK$208.60. Credit Suisse Group AG lowered its share-price forecast to HK$229 from HK$272 and maintained its "outperform" rating. Futures on the HSI dropped 1.4 percent to 23073.

Bloomberg

(HK Edition 02/10/2011 page3)