Leading Hong Kong shares ended nearly flat on Monday as investors waited for further clues on possible US interest rate hikes from Federal Reserve Chairman Alan Greenspan later this week.
The index started the day in negative territory but regained some poise in the afternoon as investors searched for blue chip bargains and squared futures positions.
The blue chip Hang Seng Index finished the session 0.07 percent, or 8.38 points lower, testing the year's trough at 12,450. Rate sensitive property stocks and China shares remained under pressure.
Volume was below recent averages with HK $11.7 billion changing hands.
Traders said the low turnover signalled the end of the current selling with strong technical support holding the market above 12,400.
The Hang Seng Index is now down one percent from the start of the year while North Asia stock market peers Taiwan and South Korea are up 15 percent and 11 percent respectively.
But some investors believe Hong Kong stocks will rebound later this year when expected strong economic growth fuels good earnings reports for local blue chip companies.
"People are bearish because the market went up too far too fast. But economic figures and unemployment should improve and we have a better chance of earnings revisions later this year," said Samantha Ho, fund manager at Manulife Asset Management which manages US $700 million in the region.
Ho said the Hang Seng was currently trading at about 14 times 2004 earnings, representing fair value.
But high flying property shares continued to decline after recent rallies which have seen the Hang Seng Properties sub index rise over 50 percent in the past year.
Hang Lung Properties was among the hardest hit shedding 2.19 percent to HK $11.15.
Shares in the city's largest property developer Sun Hung Kai Properties fell 0.7 percent to HK $71.25.
China shares, especially commodity plays, also faced selling pressure as investors worried about further measures to cool the nation's blistering economic growth.
H-shares, or shares in China registered companies listed in Hong Kong fell 1.44 percent to close at 4,626.39.
"All these shares are deeply in debt. If interest rates go up, it will have a large impact on their earnings," said Alfred Chan, chief dealer at Cheer Pearl Investment Ltd.
Yanzhou Coal Mining fell 3.47 percent to HK $8.35 despite announcing a 39 percent increase in fourth quarter earnings, beating forecasts.
Shares in steel Maanshan Iron and Steel Co fell 7.48 percent to HK $3.40, while Hang Seng component and oil giant CNOOC Ltd fell 2.99 percent to HK $3.25
China's largest independent electricity producer Huaneng Power International Inc bucked the downtrend rising 2.52 percent to HK $8.15 on resuming trade after buying stakes in five mainland power plants for 4.575 billion yuan.
Several high profile China firms are due to report results this week including China Life Insurance Co Ltd, which went public in the largest global IPO of 2003 last December, and Brilliance China Automotive Holdings Ltd the Chinese partner of German luxury carmaker BMW.