Mengniu Dairy turns sour in HK gloom

Hong Kong's comeback faltered yesterday as investors chose to lock in profits from Wednesday's bounce rather than bet on further recovery.

The Hang Seng index fell 1.4 per cent to 28,751.21 in light trade after surging more than 1,300 points in the previous session.

Falling stocks outnumbered gainers by five to one. Mengniu Dairy , China's biggest milk producer, took the most eye-catching tumble after Merrill Lynch warned that soaring raw milk costs would damage profits.

The milk processor, which elbowed out Nestlé to become supplier to China's KFC and Starbucks outlets, lost 9.7 per cent to HK$27.30 after Merrill downgraded the stock from "buy" to "sell".

Banks, though, were the biggest drag on the index. Bank of Communications and the Bank of East Asia both lost 3.7 per to close at HK$12.68 and HK$48.45 respectively.

News emerged yesterday that Uni-President , Taiwan's largest food conglomerate, plans to list its China-based business arm in Hong Kong in a move seen as an overture to a buying spree in China. One person close to the situation said the initial public offering was planned for next month.

There are already 57 Taiwanese-owned China-based companies listed in Hong Kong, and 30 more are interested in a Hong Kong IPO, according to the Taiwan Stock Exchange.

The damp mood was not confined to Hong Kong, as stocks fizzled across Asia after Wednesday's strong showing.

Japanese shares resumed their slide, with the Nikkei 225 Average falling 0.7 per cent to 15,396.3. The broader Topix closed at 1,498.86, up 0.1 per cent.

Bank stocks rose in the morning in spite of news that three institutions had been hit harder than expected by subprimerelated losses.

Mizuho Financial Group , one of the affected banks, fell 0.7 per cent to Y546,000 after gaining earlier in the day. Aozora Bank slid 1.5 per cent to Y338, but the last of the group, Shinsei Bank , rose 4.7 per cent to Y356.

TDK dropped 6.1 per cent to Y7,350 after UBS put a "sell" recommendation on the electronic components maker and lowered its price target from Y9,500 to Y7,000.

Tokyo stock exchange data showed that foreign investors, the principal driver of the Japanese market in recent years, were net sellers last week, dumping a net Y282bn of shares.

Strategists say some of the sell-off is being driven by the need to cash in liquid stocks to close positions outside Japan, while nervousness about the rising yen and patchy economic data is growing. Goldman Sachs slashed its economic forecast for the country after disappointing gross domestic product data.

In China, the Shanghai Composite also sagged, closing down 0.9 per cent at 5,365.27. Analysts said the market was bracing itself for an impending rise in interest rates, perhaps as soon as today, in an attempt to cool the country's ferocious economic growth.

Minsheng Banking dropped 1.9 per cent to Rm16.48. Vanke , the biggest listed property developer, fell 1.4 per cent to Rm35.49.

In Australia, the S&P/ASX 200 closed down 1.1 per cent at 6,528.6 after a volatile day.

Miners BHP Billiton and Rio Tinto slid as investors awaited the next move in the former's attempt to take over its rival.

The groups' shares fell 2.5 per cent and 2.1 per cent to A$41.15 and A$134.9 respectively. BHP was also hit by an earthquake in Chile that cut power to its copper mines.

Indian shares faltered too, with the BSE Sensex index closing down 0.7 per cent at 19,784.89.

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