The shock wave on the markets yesterday enveloped a Hong Kong which has already faced a battering in recent weeks. Higher interest rates, a downturn in the property market, a fall in tourism and retail sales, and the bird flu, have combined to shatter confidence that the former British territory can escape the worst of the Asian turmoil. The Hong Kong stock market lost 8.7 per cent in value yesterday and has now lost more than half its value since its high point of 16,820.31 points on August 7th last year. China-related shares also suffered heavily with the red chip index diving 22 per cent and Hong Kong shares 16 per cent. Last-ditch efforts to save the ailing Hong Kong-based Peregrine, burdened by some $400 million (6294 million) in debts, failed with a spokesman saying shortly after the market's close that "an application is under way for liquidation".

Hong Kong chief executive, Mr Tung Chee-hwa, appealed for calm in the financial markets, saying the crisis facing the brokerage would have little affect on banks. "Peregrine is not a bank," he told reporters. "Its core business is securities and investment. Its impact on the Hong Kong banking system will be minimal. I call on Hong Kong people to have cool heads in making any investment decisions."

Interest rates are expected to remain high for a protracted period to defend the Hong Kong dollar, the only Asian currency to keep its value during the recent turbulence. Mr Tung said.

"We are determined and have the ability to defend the dollar peg. Without the dollar peg, Hong Kong's financial and banking system will be in chaos. This will affect Hong Kong's economy."

There were chaotic scenes as investors poured into the Peregrine headquarters in New World Tower after it drew up a liquidation petition when a rescue deal with a Swiss group in Zurich fell through.

Peregrine, which catered to wealthy clients, said investors holding share accounts would get their shares back or be able to switch them to other brokerages. But the news helped send the Hang Seng index plummeting more than 11 per cent at one point before recouping slightly.

"Frankly, I feel awful. I'm very disappointed. We thought we had the Zurich people on board. Then at the last minute they pulled out," Mr Alan Mercer, managing director (legal), was quoted as saying, adding that they had an orderly settlement of accounts.

Many other Asian markets were also affected.

Tokyo share prices closed 2.2 per cent lower on Monday, with the Nikkei stock average of 225 selected issues on the Tokyo Stock Exchange off 330.66 points at 14,664.44 - the lowest level since July 3rd, 1995.

Thai stocks crashed through new 10-yearlows, losing 3 per cent as the baht hit 55.5156.45 to the dollar and regional jitters scared off investors, analysts said.

The Stock Exchange of Thailand composite index shed 10.50 points to end the day at 339.17.

Fears over the fallout from Peregrine's looming demise struck Singapore hard, as blue chips fell a hefty 8.7 per cent.

In contrast to Hong Kong, a mood of cautious optimism was evident in South Korea yesterday after a record trading day on the day on hopes the worst may be over in the country's debt crisis. The IMF managing director, Mr Michel Camdessus, was reported as telling the government that an atmosphere for loan rollovers and support for South Korea had been created in the international financial community. He also told president-elect Mr Kim Daejung that the government should aim to win the support of labour for the programme undertaken to secure the IMF's $58.5 billion rescue package.