Hong Kong stocks slipped 0.17 percent on Wednesday, with investors hesitant ahead of an expected interest rate increase by the US Federal Reserve. Traders said investors were holding their breaths to see whether Hong Kong banks will follow the Fed's widely expected 25-basis point interest rate hike. The Fed is expected to announce its decision on rates at around 3:15 am Hong Kong time (1915 GMT).
Hong Kong typically follows US rate moves as its currency is pegged to the greenback, but the city's banks have largely resisted recent US rate rises thanks to an abundance of funds in Hong Kong's banking system and soft loan growth.
The blue-chip Hang Seng Index ended down 22.46 points, at 13,555.80.
Turnover totalled HK$17.7 billion (US$2.3 billion), compared to HK$18.3 billion on Tuesday.
"People think it is likely Hong Kong interest rates will go up, and that is weighing on market sentiment," said Francis Lun, general manager at Fulbright Securities, noting that local banks could not ignore higher US rates forever.
Most money market dealers, on the other hand, expect Hong Kong lenders to keep rates unchanged because ample liquidity remains in the banking system.
The Hong Kong Monetary Authority bought Hong Kong dollars on Monday for the first time since September to bolster the currency and intervened again overnight on Tuesday.
Investors are worried that any drop in surplus funds from the banking system could force local banks to raise interest rates.
"Many investors also think the Fed may abandon its practice of measured 25-basis point interest rate rises, and any rate hike higher than that would certainly make waves in the market," said Alex Wong, asset management director at Rexcapital Asset Management.
China Gas Holdings Ltd slipped 2.8 percent to HK$1.39 after it said it signed a preliminary agreement to sell up to 10 percent of the company to India's government-controlled GAIL (India) Ltd, just days after it announced a similar sale plan with state-run Korea Gas Corp.
Property and infrastructure firm Hopewell Holdings Ltd rose 0.51 percent to HK$19.70 after Merrill Lynch initiated coverage of the company with a "buy" rating and a 12-month price target of HK$24, citing the stock as "considerably undervalued".
Concerns about rising interest rates undermined most property stocks.
Henderson Land Development Co Ltd fell 1.66 percent to HK$35.50 while the Hang Seng property sub-index shed 0.67 percent to 16,603.05.