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By Lillian Liu (China Daily)
Updated: 2007-09-20 07:29

HONG KONG: The stock market soared to a record high after the city's banking authority trimmed the base rate in response to the US move to cut interest rates, easing investor worries of a global credit crisis.

People walk past a display showing the closing Hang Seng Index (HSI) in Hong Kong September 19, 2007. Hong Kong's benchmark HSI smashed through the record 25,000-point on Wednesday, in line with other global markets, after the US central bank cut interest rates by a half-percentage point. [Reuters]

The Hong Kong Monetary Authority (HKMA) followed the US Federal Reserve's move, reducing its base rate by half a percentage point yesterday. The HKMA usually mirrors any US move on interest rates because the city's currency is pegged to the US dollar.

The US central bank made a bold move to head off the risk of a sharp slowdown in the country's economy on Tuesday, cutting the interest rate by 50 basis points to 4.75 percent.

Hong Kong's benchmark Hang Seng Index, led by property and financial stocks, surged 977.79 points, or 3.98 percent, to 25554.64, the highest since the index was established.

Interest rate-sensitive players including property developers and banks sharply outperformed the market. The Hang Seng Properties Index jumped 2145.47 points to 32172.32 and the Hang Seng Finance Index increased 1090.84 points to 38690.30.

Analysts said Hong Kong stocks will stay high for a while, but the long-term trend will depend on further policy moves and fluctuation on the mainland market.

"Share prices will remain at a good level for a while, but it's hard to predict for how long," said Castor Pang, a strategist at Sun Hung Kai Financial Group.

He said the US interest rate cut was aggressive and could encourage speculation.

"The deep rate cut is a wider-than-expected move, but it shows that the US banking regulator is eager to send a powerful stimulus into the economy," said Kenny Tang, associate director at Tung Tai Securities.

The Fed said the rate cut was intended to "help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets".

Stock markets around the world rallied after the US interest rate cut, its first reduction in four years.

But the mainland market was almost flat yesterday, with the Shanghai Composite Index closing at 5395.27 points, down 29.94 points or 0.55 percent.