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HK Stocks Make Historic Plunge

October 23, 1997

HONG KONG (AP) _ Interest rate hikes pushed Hong Kong’s main stock index down by 14 percent Thursday before recovering slightly, its worst plunge since the worldwide markets crashed a decade ago.

The Hang Seng Index broke through the 10,000-point level in morning trading to 9,998.07, down 1,639.7 points, then came back some in afternoon trading (2:45 a.m. Thursday EDT) to 10,303.42 _ off 11.4 percent.

The morning plunge was the biggest drop in points in the market’s history, and the largest percentage fall since Oct. 26, 1987, when the market shed 1,120.70 points to close at 2,241.69.

Thursday’s stock market drop followed three days of steep falls that had already shaved 14 percent from the market’s value since Friday. The market has lost 40 percent of its value since hitting a high of 16,673.27 on Aug. 7.

Financial Secretary Donald Tsang told reporters he was ``not worried at all″ about the market drop and that Hong Kong’s economy remains fundamentally robust.

``Our companies are still making good profits,″ he said. ``They are turning in good dividends for the shareholders. ... I don’t think it is a matter for people to panic about.″

The main reason for Thursday’s fall appeared to be a huge rise in short-term interbank rates, driven by Hong Kong central bank measures _ to 150 percent from 7 percent Wednesday.

Banks also announced their prime rate would rise by 0.75 of a percentage point to 9.5 percent from Friday.

The Hong Kong banking authorities made no statement, but the hike appeared designed to head off borrowing for speculative attacks on the Hong Kong dollar.

If so, it appeared to be working because the Hong Kong dollar strengthened against the U.S. dollar Thursday, rising to 7.685 from 7.74 Wednesday. In later action Thursday, the dollar was trading at 7.6960.

Hong Kong’s is the only Asian currency still pegged to the U.S. dollar. Several other Asian currencies have plunged since July in a wave of turmoil sweeping markets from Indonesia and Malaysia to Singapore and the Philippines.

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