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Nikkei Markets

Hong Kong shares slide amid protests and PBOC worries

Chinese central bank extends most medium-term loans but keeps rate unchanged

HONG KONG (Nikkei Markets) -- Hong Kong shares slid for a second consecutive day on Tuesday, with losses for mainland equities adding to worries about escalating political unrest in the city after the Chinese central bank left the interest rate unchanged on certain medium-term loans.

The Hang Seng Index fell 1.2% to 26,790.24. Hong Kong rail operator MTR slipped 1.3% after a train leaving the city's Kowloon area derailed. No injuries were initially reported, but MTR has reportedly closed its Hung Hom station and suspended services between Hung Hom and Mong Kok East stations.

The Hang Seng China Enterprises Index of large mainland companies listed in the city fell 1.3%. In the mainland, the Shanghai Composite Index declined 1.7%, while the yuan traded onshore rose 0.3% against the dollar to 7.0901.

The People's Bank of China on Tuesday extended 200 billion yuan ($28.3 billion) of one-year medium-term lending facility (MLF) loans, less than the 265 billion yuan in loans maturing, and kept the one-year MLF rate unchanged at 3.3%, according to Reuters.

The action led some to doubt whether Beijing will be easing its policy stance as much as some expected, said Alvin Ngan, an analyst at Zhongtai Securities International.

The Hang Seng Index has shed 2.1% so far this week after rising 6.3% over the last two weeks following the withdrawal of a controversial extradition bill that sparked citywide protests and amid optimism over Sino-American trade relations.

"The market is not expecting more positive news right now and the index has limited upside beyond 27,200," said Alan Li, portfolio manager at Atta Capital

Anti-government protests in the city have continued even after the withdrawal, as four of the protesters' five demands remain unmet. Hong Kong Chief Executive Carrie Lam on Tuesday told reporters that a platform for public dialogue with the government will be launched next week.

Moody's Investors Service on Monday downgraded Hong Kong's ratings outlook to "negative" from "stable," citing the rising risks that the ongoing protests in the city undermine the strength of Hong Kong's institutions. Moody's affirmed its Aa2 long-term issuer rating.

Li said downside stemming from the downgraded outlook by the ratings agency was already factored in.

Meanwhile, a round of deputy-level Sino-American trade talks is scheduled to start in Washington on Thursday, the U.S. Trade Representative's office said on Monday. This is ahead of high-level talks in October, which are expected to include a meeting between U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He.

The U.S. Federal Reserve, meanwhile, is widely expected to deliver this year's second rate cut on Wednesday.

Air China and China Eastern Airlines extended losses following the jump in global crude prices, even as both airlines reported increases in the number of passengers carried last month. Air China, which reported a 5.7% rise in August passenger traffic, slipped 2.4%, while China Eastern was down 2.7% despite a 6.5% advance in the metric.

Contract manufacturer of phones FIH Mobile, a unit of Taiwan's Hon Hai Precision Industry, slid 20% after the company's billionaire founder Terry Gou said he will not contest in Taiwan's 2020 presidential election. The stock had jumped 23.2% last week amid speculation that Gou may stand as an independent candidate.

Mainland developer China Evergrande Group slid 2.5% after Moody's lowered its outlook for the company to "stable" from "positive."

Fast-moving consumer goods company Heng Tai Consumables declined 4.6% after saying it expects loss for the full year ended June 30 to have widened from a year ago.

-- Benny Kung

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