Speculation over China's plans for its US$1 trillion foreign reserves also played a part.

The People's Bank of China, the central bank, yesterday refused to comment on reports that Beijing is shifting its foreign reserve holdings away from US Treasuries, speculation that helped push the dollar sharply lower in currency markets on Monday.

Speaking at a conference in Beijing on Friday, central bank deputy chief Wu Xiaoling reportedly noted the risks arising from the greenback's decline against other currencies for East Asian holders, triggering a spate of dollar selling that added to the greenback's recent declines.

"The major concern now is the US dollar. If it has a drastic drop, it would cause more uncertainties in financial markets all over the world," said Pang.

However, some analysts believe that market sentiment still remains good and expect a rally in the near term.

"We are likely to see more consolidation in the near term after today's dramatic decline. Some window-dressing activity in December is likely to support the index," said Kitty Chan, investment manager at Celestial Asia Securities.

Selling was across the board as institutional investors used Wall Street's decline as an excuse to take profit, dealers said.

The H-share China Enterprises ended at 8133.78, a two-week closing low. Bank of China slid 5.3 per cent to HK$3.56 and Industrial and Commercial Bank of China dropped 5.3 per cent to HK$3.76.

Agencies contributed to the story

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