"I don't see this as the start of a correction, because there is no sign of a turnaround in interest rates," said head of regional research at Daiwa Research Institute Peter Perkins. Interest rates were still on a downward path, although the market had already discounted current and potential gains from rate cuts, analysts said.

"I think the index is just going to fluctuate this week,"Perkins added. The Hang Seng Index tumbled 363.44 points, or 3.52 per cent, to close at 9,952.00 on Friday. Over the week, the index lost 11.14 points, or 0.1 per cent. Turnover fell to a daily average of HK$5.10 billion from an average HK$5.25 billion the previous week.

Brokers said trading volumes were likely to fall off more sharply in the pre-holiday season than in previous years as more institutionalinvestors closed their books early to prepare for the holidays and the advent of the euro. Expectations of another US interest rate cut before the end of year were low, but markets might rally nonetheless in advance of the US Federal Reserve meeting on Friday. This was despite forecasts of additional cuts to be made by European banks and after the Bank of England's half-percentage point cut on Thursday.

Hong Kong banks last cut interest rates by a quarter percentage point, bringing most banks' prime lending rate down to 9.25 per cent."There is more reason to be cautious about the fundamentals near term," Perkins said. "People are still nervous about the economy, and about things like corporate competitiveness."