Short-sellers hurt HSBC after record rights issue

This morning in Hong Kong, the slide continued, with the price tumbling to its lowest in 13 years as hedge funds began shorting the shares ahead of them going ex-rights later this week.

That selling spilled over into London, where HSBC's price slumped 22¾p to 338p. Dealers said that the short-sellers were being motivated by the likelihood of HSBC shares continuing to weaken in the wake of its deeply discounted rights issue to raise a record £12.5 billion at 254p.

But the early focus of attention was on Lloyds Banking Group after it reached agreement over the weekend to join the Government's asset protection scheme relating to £260 billion worth of dodgy assets. Lloyds, in which the Government now has a 77% majority stake, saw its shares respond this morning with a fall of 4.9p to 37.1p.

Goldman Sachs says Lloyds is now "substantially" less risky, but warns it comes at a price of considerable dilution. Deutsche Bank says participation in the scheme materially improves capital ratios in the short-term and buys the bank precious time. But weak profits and a sliding capital base will keep investors apathetic. It has repeated its sell rating and 35p target.

The Lloyds share price has collapsed from around 260p since September when the merger with rival HBOS was announced. Lloyds reported last week that HBOS lost a massive £10.8 billion last year.

Barclays, which has to decide soon if it wants to join the Government protection scheme on assets, fell 6.8p to 58p. Another loser was Standard Chartered, down 35½p at 717p.

The continuing turmoil in the banking sector acted as a drag on the rest of the market. The FTSE 100 index, which fell almost 300-points last week, was on the slide again. It lost a further 27.07 at 3503.66.

Oil shares responded positively to a firmer oil price which continues to nudge towards $50 a barrel. BP rose 7p to 421p, Royal Dutch Shell firmed 6p to 1146p and Cairn Energy added 22p at 1837p.

Builders also attracted support. Bovis Homes put on 12½p at 390½p following full-year results which dealers judged could have been a lot worse. Berkeley Group also rose 38p to 914p, while Persimmon added 8p at 340¼p.

Tokyo blue-chips retreated by more than 1% to a 26-year closing low, hurt by worries about the fate of General Motors and as hopes for a further lift from China waned.

Investors had been reassured last week by the prospect of more news on an economic stimulus emerging from the annual meeting of China's National People's Congress, but none was forthcoming.

The Nikkei 225 Average ended down 87.07 points at 7086.03, its lowest finish since October 1982.

Dealers reckoned buying by public pension funds had been supportive whenever the index looked like testing the 7000 level.

Takeda Pharmaceutical came under the hammer after US regulators asked for more data about a key drug, raising fears that it may be delayed by years. The stock was down by its daily limit.

Investors were keen to see the outcome of a meeting between the US carmakers General Motors and Chrysler and officials from the United Auto Workers in Detroit this week after auditors raised doubts about GM's ability to survive outside bankruptcy.

Hong Kong shares were dragged lower by the sell-off in banking giant HSBC. HSBC's local unit, Hang Seng Bank, dived by 6%. But some mainland counters rose, limiting the fall on the main stock market index, as investors kept alive hopes for enhanced stimulus steps from Beijing.

The Hang Seng index ended the day down 576.94 points at 11,344.58.