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Saturday, October 25, 1997


US and UK markets fail to rally after Hong Kong crash

Hot work as the markets fluctuate

Stock Markets remain uncertain following Thursday's big losses in the Far East. London initially followed Hong Kong's recovery, but gave up when the Dow Jones refused to rally.

By lunchtime the FTSE 100 was up 104.7 points, but when the Dow Jones opened at mid-afternoon London time and American shares plummeted, the footsie took a sharp downturn, closing down 21.3 points at 4970.2. However BBC analysts said the swings in London were exaggerated because of a new share dealing computer system opened last Monday, and the relatively low volume of trading.

Earlier the Hong Kong Stock Exchange recovered some of its losses after Thursday's crash, closing nearly seven per cent up on the previous day.

Hong Kong's recovery was partly due to traders taking advantage of low prices with companies backed by the Chinese Government doing particularly well, and also because Hong Kong sharply raised interest rates in support of the Hong Kong dollar.

[ image: Tung Chee-Hwa confident of beating speaculators]
Tung Chee-Hwa confident of beating speaculators
The slump in the Hong Kong Bourse is related to the exchange rate crisis that has been sweeping through the South East Asian 'Tiger Economies' since the Thai Baht was floated against the US dollar on July 2.

Hong Kong is the last regional currency to be linked to the US dollar, and speculators pounced on Thursday, hoping to force the Hong Kong Monetary Authority to float the HK dollar. But the authorities have refused to break the link.

[ image: <>]
Officials at the Monetary Authority admitted they entered the market on Thursday is support of the HK dollar, but refused to say how much of their dollar reserves thay had spent. The reserve had stood at 88.1 billion dollars, the third biggest in the world after Japan and China.

Friday's economic rebound pleased Tung Chee-hwa on his return from an official visit to Europe. The Hong Kong Chief Executive said "we believe that this will be short term ... We'll be able to beat off the speculators on the currency side"

[ image: Prices fluctuate in market chaos]
Prices fluctuate in market chaos
Mr Tung said the Hong Kong Government is committed to maintaining the local dollar's tie to the US dollar, and he revealed that the Chinese Government is prepared to support them if necessary.

Although Hong Kong's Bourse has recovered some of Thursday's losses, it is still 40% down on the record highs of August following the return to Chinese rule. Some traders still worry that Hong Kong will be too expensive a place to do business in while the link to the US Dollar remains.

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