Hong Kong stocks dropped for a fourth day amid lingering concern the Central Government will step up efforts to tighten monetary policy, countering investor optimism that the global economic recovery is on track.

"Hong Kong shares have fallen too much in recent days on concerns the mainland will raise interest rates," said Danny Yan, a Hong Kong-based fund manager at Haitong International Asset Management, which oversees about $400 million. "That concern seems overdone. Hong Kong companies with significant revenues from overseas are benefiting from the global economic recovery."

The Hang Seng Index (HSI) lost 0.1 percent to 23788.83 at the close, wiping out gains of as much as 0.8 percent and extending its drop to a fourth day. That's the longest losing streak since the period ended November 17. The Hang Seng China Enterprises Index slipped 0.3 percent to 12,562.05 after gaining as much as 0.9 percent.

The HSI dropped 1.7 percent last week, its first weekly decline since the period ended December 17, after China reported faster-than-expected economic expansion during the fourth quarter, spurring concern the government will step up efforts to curb inflation.

The International Monetary Fund raised its forecast for global economic growth this year, reflecting stronger US output based on tax-cut extensions, while emerging nations lead the recovery.

A gauge of finance companies posted the biggest decline among four industry group in the HSI. Shanghai has sent a proposal for a property tax in the city to the Ministry of Finance, according to a report by China Business news Television late Monday. The city plans to implement a 4 percent levy on the value of homes, the report said.

The People's Bank of China has ordered lenders to set aside more deposits aside as reserves four times in the past three months, with the latest increase having taken effect January 20. It also boosted benchmark one-year lending and deposit rates twice in the fourth quarter of 2010, the first increases since 2007, as part of efforts to tame inflation.

Bank of Communications fell 0.8 percent to HK$7.68. Industrial & Commercial Bank of China Ltd, the nation's largest lender, lost 0.2 percent to HK$5.86. China Construction Bank Corp, the second-biggest, slipped 0.4 percent to HK$6.89.

China Life declined 1 percent to HK$30.85. The company said a routine audit by the National Audit Office conducted last year on the company's parent identified issues including non-compliance in underwriting insurance. The issues raised have "no material impact" on the company's operation, it said.

Zijin Mining decreased 1.6 percent to HK$6.22. Gold declined to a two-month low amid growing optimism about an economic recovery, which reduces the metal's appeal as an alternative asset.

China Lumena Material Corp, a maker of thenardite, a chemical used in detergents and medicine, slumped 14 percent to HK$2.71, the most in the HSI. The company said its shareholder Nice Ace Technology Ltd plans to sell 340 million shares at HK$2.81 apiece.

Among stocks that gained, Tencent Holdings Ltd, China's biggest Internet company, jumped 4.7 percent to HK$199.10. The company will set up a fund to invest in technology and Internet businesses, Sina.com reported Monday, citing the company. The size of the investment fund may be about 5 billion yuan ($759 million), according to the report, which didn't say where it got the information. Jane Yip, a spokeswoman at Tencent, didn't return three phone calls and an e-mail seeking comment.

China Resources Enterprise Ltd, the partner of SABMiller Plc, climbed 1.8 percent to HK$31.25 after signing a deal with Kirin Holdings Co to combine their soft-drink assets in China.

Shandong Chenming Paper Holdings Ltd, the maker of paper products, increased 1.9 percent to HK$6.58. The company said net income rose 39 percent last year from a year earlier to 1.2 billion yuan.

Twenty-three stocks declined, while 19 rose among the HSI's 45 constituents. Shares in the gauge trade at an average 12.8 times estimated earnings compared with about 17.2 times at the start of 2010. Its futures climbed lost 0.1 percent to 23781.

Bloomberg

(HK Edition 01/26/2011 page3)