A recent China government survey shows most leading Chinese economists believe the country should adjust the yuan exchange rate sometime this year. But comments from Chinese officials at the World Economic Forum in Davos at the weekend suggest the market will have to wait for China to take currency reform at its own, gradual pace.
The blue chip Hang Seng Index ended up 0.52 percent, or 71.63 points, at 13,721.69. Volume was below recent averages with HK $16.5 billion (US $2.11 billion) worth of shares changing hands as the Chinese New Year holiday approaches.
The index has fallen 3.57 percent so far this year, underperforming a 3.3 percent loss in the blue chip Dow Jones industrial average.
Many analysts expect the Hang Seng to trade sideways until the second half of the year when interest rate worries in both the US and China begin to fade.
"I'm still pretty cautious for the coming two months. Interest rate expectations have changed and China will still carry on with economic austerity measures targeting certain sectors such as infrastructure and steel," said Joseph Lau, director at Sun Hung Kai Asset Management.
Strong China growth figures posted last week also heightened concerns about further interest rate hikes in China along with measures to rein in overinvestment in key sectors such as infrastructure and commodities.
There is some debate among economists whether Hong Kong banks will follow US rates higher this week. The aggregate balance remains high but the local currency has come under pressure from arbitrage trades due to the wide rate differential between it and the US dollar.
Asset plays like infrastructure firms and toll road operators were among the biggest gainers as a possible yuan revaluation would make their yuan denominated assets stronger.
Container leasing and port investor Cosco Pacific Ltd rose 3.17 percent to HK $16.25. Shenzhen Expressway Co Ltd rose 4.24 percent to HK $3.075, Beijing Capital International Airport Co Ltd jumped 4.72 percent to HK $3.32, while Guangshen Railway put on 3.28 percent to HK $3.15.
China's biggest electronic chips maker, SMIC, climbed 6 percent to HK $1.59 after it agreed to pay $175 million to rival TSMC to settle a patent and trade secret lawsuit.
But Sinochem Hong Kong Holdings Ltd slumped 40 percent to HK $0.285 on resuming trade after Chinese state oil trader Sinochem Corp agreed to sell a fertiliser firm to the Hong Kong-listed company for HK $5.05 billion (US $647.4 million) in a reverse take-over.
Mainland gas distributor China Gas Holdings Ltd advanced 5.59 percent to HK $1.51 after it unveiled a preliminary deal to sell up to 10 percent of the company to state-run Korea Gas Corp. Top computer maker Lenovo Group Ltd rose 1.2 percent to HK $2.10, recovering from a recent fall amid continued uncertainty over its deal to buy IBM's PC-making business. A source told Reuters on Friday the Bush administration will extend its review of the deal to examine potential national security concerns.