Hong Kong stocks dropped for a third consecutive session yesterday as investors sold off shares of mainland banks and insurers after new reports disclosed their exposure to the subprime mortgage concerns in the United States.

The benchmark Hang Seng Index opened the day well, climbing 273.07 points, or 1.16 percent, to reach 23,858.04. But there wasn't much good news after that, as the market slid 0.66 percent to close the morning session at 23,429.08.

And afternoon trading continued to nullify last week's gains. A 1.97 percent loss closed the market at 23,119.87.

Turnover rose to HK$84.12 billion from Monday's HK$81.12 billion.

Hong Kong-listed mainland lenders and insurers led the losses as worried investors sold off a large number of shares, fearing the companies' losses.

A local newspaper quoted Liu Mingkang, chairman of the China Banking Regulatory Commission, as saying that mainland banks and insurers on the whole had a subprime mortgage exposure of about $15.9 billion.

The news triggered immediate sell-offs of the banking issues and reversed the early morning market momentum.

"The stock market correction hasn't reached an end; a wider drop is still foreseeable," said Ronald Wan, a managing director at BoCom International.

Wan predicted the Hang Seng Index could drop to 21,000.

"However, all the uncertainties that cloud the market should be made clearer early next month," he said.

Mainland financials led the declines, with China Construction Bank dropping 2.6 percent to HK$5.67 and Industrial and Commercial Bank of China falling 2.3 percent to HK$5.20.

Ping An Insurance tumbled 4.7 percent to HK$56 on reports that its 120-billion-yuan refinancing plan is likely to be approved by shareholders today.

China Life slid 3.7 percent to HK$29.

"Hong Kong-listed mainland financials are definitely oversold," said Wong Man-san, head of research at BoCom International. "Investors overreact and they have a very negative outlook toward those lenders and insurers."

"There is a lot of negative news about banks and insurers these days," Wong said, adding that mainland banks are good for long-term investments.

(HK Edition 03/05/2008 page2)