Hang Seng plunge seen as healthy correction'

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SHARE prices in Hong Kong fell sharply yesterday for the second day running, although the declines in the Hang Seng index - the steepest since the 1987 crash - were widely seen as a healthy correction to an overheated market.

The index, down 6.5 per cent on Thursday, shed another 3.3 per cent to 11,001.48 in record volume. The authorities said they were watching the market closely.

The falls were catalysed by several fears, among them a row between China and the US that could affect textiles trade passing through Hong Kong, and the possible introduction of extra restrictions on mortgage lending that would trim bank earnings.

The main reason for the market's nose- dive, however, was profit-taking by both foreign and domestic investors. The Hang Seng index soared by nearly a half between October and the beginning of January.

Barton Biggs, a strategist at Morgan Stanley in New York, said the slide had not changed his positive views. 'This is the best thing that could have happened; the market was building up to a huge bubble.'

Nick Knight, of Nomura International, whose recommendation to clients to switch investments from Hong Kong was cited as a factor behind the fall, said the market remained fundamentally attractive.

Futures prices had, unusually for the Hong Kong stock market, fallen below cash prices early in the week. January futures were still trading at a small discount at yesterday's close, but most analysts believe share prices will settle down.