HK Dlr Slightly Higher Late; Gains In HK Shares Drive Demand

Gains in Hong Kong shares pushed up demand for the local dollar, leading it slightly higher against the U.S. dollar Monday and keeping it near the upper limit of its trading band.

Traders said optimism over local equities is likely to encourage investors to keep funds in Hong Kong, curbing any gains in the U.S. dollar. They said they expect the U.S. dollar to be capped at HK$7.7510 in the near term.

In late Asian trade, the U.S. dollar was at HK$7.7503, down from HK$7.7504 late Friday. The U.S. unit was fixed at HK$7.7504 earlier Monday.

"The rise in local stocks spurred buying of the local currency during the afternoon by both local and foreign banks, helping it reverse Friday's decline," said a senior trader at a local bank.

Gains on Wall Street on Friday and easing concerns over credit tightening in China led Hong Kong shares to a near 12-month closing high Monday. The blue-chip Hang Seng Index rose 2.7% to 20,929.52.

Another trader at a U.K. bank said broad U.S. dollar weakness overseas also discouraged investors from holding onto the U.S. dollar.

The U.S. dollar gave up some ground to the yen in Asia Monday, as investors took profits following a rise Friday. At 0745 GMT, the U.S. dollar stood at Y97.36, down from Y97.48 in New York late Friday.

Hong Kong interbank offered rates were broadly steady due to ample liquidity.

"I don't see any big force to drive up short-dated Hibors in the near term as the aggregate balance is still above HK$232 billion," a senior trader at a U.K. bank said.

"Unless the U.S. dollar rises above HK$7.7510 with strong outflows to tighten liquidity, Hibors are likely to stay at their current levels," the trader added.

The one-year U.S. dollar/Hong Kong dollar forward contract was quoted at a discount of 223 points to the spot rate, compared with a 219-point discount late Friday. link....