Major Hong Kong banks held prime lending rates steady Thursday in line with the U.S. Federal Reserve, but analysts expect tighter credit in the first half of 2009 due to the gloomy economic outlook.

The Hong Kong Monetary Authority matched the Fed's decision to leave benchmark rates unchanged, keeping its base rate at 0.50%. Commercial lenders who have been refusing to go along with recent Fed rate reductions kept their own prime rates steady.

Analysts predicted commercial banks could soon raise mortgage rates, at a time when they aren't overly concerned about aggressive lending because the property market is weak.

"They're probably happy with the existing loan portfolios and market share, given the mortgage market isn't as fierce as it was," said Standard Chartered fixed-income strategist Frances Cheung.

"If there's any change, it'll be the mortgage rate to be adjusted first," Cheung said.

HSBC Holdings PLC (HBC) unit Hongkong & Shanghai Banking Corp. said Thursday it is keeping its prime lending rate unchanged at 5.00%. Hang Seng Bank Ltd. (0011.HK), another HSBC unit, and BOC (Hong Kong) Ltd. (2388.HK) also held their prime rates steady at 5.00%.

HSBC spokeswoman Dora Cheung said growing cost pressures and narrowing interest margins are giving Hong Kong banks no room for more rate cuts.

Hong Kong interbank offered rates have eased sharply since peaking in September, prompting a series of interventions in the currency market by the HKMA that were valued at more than HK$180 billion.

Although the HKMA typically moves in tandem with the Fed, commercial banks are able to set their own rates and they refused to go along with four Fed rate cuts between October and December that brought the federal-funds rate to as low as zero from the previous 3.50%.

The Federal Reserve's policy-setting board on Wednesday kept its target for the fed-funds rate unchanged at zero to 0.25%.

While holding rates steady, Hong Kong lenders in November began raising mortgage rates by 50 to 150 basis points as property prices and transactions fell sharply.

The total value of property transactions in December fell 65.1% to HK$20.5 billion from a year earlier, Land Registry data show.

-By Jackie Cheung and Chester Yung, Dow Jones Newswires; 852-2802-7002; jackie.cheung@dowjones.com

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