Hong Kong kicked off a critical week for its economy on Monday with a dramatic decline in the stock market. The Hang Seng index fell by over 11% by the end of morning trading. The local stock market has been undermined by the regional crisis, by last week's falls on Wall Street and by the expected collapse of Peregrine's, one of Asia's biggest investment banks. Asia correspondent, Matt Frei, reports from Hong Kong:

It's been a bad start to what could become a terrible week. The Hang Seng index has now lost around 27% of its value since the beginning of the year.

Last week's slump on Wall Street, prompted by the Asian crisis, has come full circle to batter Hong Kong. Financial woes, especially in Indonesia, mean that Hong Kong looks more over-valued by the day.

But, like drowning sailors clinging to a lifeboat, the authorities here are desperate to maintain the peg between the Hong Kong and US dollars, once the cornerstone of the territory's strength. Sir Donald Tsang, the Financial Secretary, told reporters at the weekend that once you loosened the peg it was gone for ever, like virginity.

Despite this determination, Hong Kong cannot stay aloof from the regional crisis. The demise of the territory's biggest independent investment bank, Peregrine's, is a case in point.