SHANGHAI: Hong Kong stocks fell 3 percent on Thursday, tracking weakness in regional markets after confirmation of a hawkish stance from the US Federal Reserve, and escalation in Sino-US tensions. China shares also fell.

The Hang Seng Index fell to a one-month low, and registered its biggest one-day drop in nearly four months. Financial shares led the decline, after Goldman Sachs on Wednesday downgraded some major Chinese banks over government debt concerns.

Declines were milder on the mainland, where the blue-chip CSI300 Index fell 0.7%, and the Shanghai Composite Index lost 0.5%.

While almost all Fed officials agreed to hold interest rates steady last month, minutes of the meeting released on Wednesday showed the vast majority expected policy would eventually need to tighten further.

Also damping risk appetite was an influential Chinese trade policy advisor’s statement that China’s export controls on metals used in semiconductors are “just a start”, as Beijing ramps up a tech fight with Washington.

The market is already suffering from signs of a slowng post-COVID recovery in China.

Tao Wang, chief China economist at UBS Investment Bank, said that recent data shows soft growth momentum in June, but “we expect growth momentum to pick up again in H2 as consumption recovers further and property activities stabilize gradually on the back of more policy support.”

An index tracking Hong Kong-listed Chinese banks tumbled 6.5% to seven-month lows, in its worst day since early 2018.

The index dropped 3.6% the previous session, when Goldman Sachs downgraded top Chinese banks including Industrial and Commercial Bank of China.

Chinese property developers listed in Hong Kong lost 2.7%, while the Hang Seng Tech Index declined 1.7%. In China, most sectors fell. The STAR Chip Index rose slightly.