Hong Kong stocks ended sharply lower on Monday on renewed fears that China will hike interest rates to cool its booming economy.
The blue-chip Hang Seng index fell 2.58 percent, or 319.82 points, to close at 12,076.57. The H-share index, made up of China shares listed in Hong Kong, also extended losses in afternoon trade and ended 3.18 percent down, or 139.52 points, to close at 4,241.71.
"I don't think people care what really happened when they saw Mainland China's shares dive like that. They just wanted to sell," said Steve Cheng, an associate director at Shyness Wang Securities (HK).
China's benchmark Shanghai composite index, which groups hard currency B shares and yuan-dominated A shares, fell 2.26 percent on Monday to its lowest finish since December.
Data showing that China's producer prices surged by 5.7 percent year-on-year in May heightened investor fears that China would order its first interest rate hike in nearly a decade.
It was the sharpest increase in prices of goods at the factory gates since 1996. Chinese officials have said they may raise benchmark-lending rates if inflation, as measured by the consumer price index (CPI), exceeded five percent.
Data released last week showed consumer prices rose 4.4 percent in the year through May.
Some China shares which bucked the down trend included state-backed China Insurance International Holdings Co, which rose 2.05 percent to HK $3.725.
China's largest listed coal producer Yanzhou Coal gained 1.23 percent to HK $8.20 as higher coal prices prompted some brokerages to upgrade the firm. Hong Kong's properties counters shed gains and were all-lower with tycoon Lie Ka-shing's Cheung Kong Holdings leading the declines.
It fell 3.75 percent to HK $57.75. Analysts had expected property stocks to rise ahead of what is expected to be aggressive bidding at Tuesday's government land auction.
But heavier losses were seen among Chinese carmakers with Greeley Auto skidding 7.41 percent and others such as Brilliance China, Downey Motors and Qingling Motors down between 6.48 and three percent.
J.P. Morgan cut its ratings on Downey and Brilliance China to "neutral" from "overweight," citing tougher conditions in the fast-growing but fiercely competitive mainland auto sector.
"We foresee worsening of China's auto sector's fundamentals, as reflected in an increasingly oversupplied auto market, the heightening pricing pressure," and tightening of car loans by banks, J.P. Morgan analyst Frank Lie wrote in a research note dated on Friday and seen on Monday.
Trade was relatively robust with HK $14.86 billion (US $1.9 billion) worth of shares changing hands, but market watchers said many investors were saving up their money for a spate of upcoming initial public offerings.
On Monday market's tailspin is likely to put a dampened on some of the new stock debuts, they said. "Market sentiment is such that it's inevitable that the newcomers will come under pressure if this atmosphere persists into the week," said Y.K Chan, a strategist at Phillip Securities.
China Shipping Container Lines Co Ltd, which raised US $985 million in its initial public offering, and mainland instant messaging firm Tenneco Holdings Ltd, which raised US199 million, will debut on Wednesday.
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