Raphael Wu, economist at Warburg Dillon Read in Hong Kong, said he expected GDP to contract by 5.5 per cent for the whole of 1998 and also for the second-quarter of the year.

The government estimates a contraction of four per cent in 1998 GDP compared with last year, and that the second quarter GDP will shrink by five per cent compared to the same period in 1997.

"We would not expect a full recovery from now on, though a slight, short recovery is possible for quarter four due to the strength of the yen," Wu said.

He based his prediction on the grounds that economic fundamentals have not changed, the unemployment rate was expected to rise and banks' creditpolicy would remain tight, he said.

The government will announce the provisional July-September unemployment figures on Monday, and on Tuesday the GDP data for the second-quarter of this year.

"There's no guarantee that (the rate cut) transmits through to the real economy. It helps sentiment, but not enough to cause a rebound in the fundamental economy and consequently it's necessary, but not sufficient," said economist at Paribas Asia Equity Philip Smyth

"We need to get a reversal in some of the other numbers, and come Monday we'll see yet another poor unemployment number in Hong Kong. People are still worried about their jobs, so even though the price of money is cheaper in Hong Kong, that doesn't mean you're going to go out and spend it," he said.

Major Hong Kong banks cut their prime lending rates by 25 basis points to 9.75 percent with effect from Monday, the first cut since March 30 when the banks trimmed rates to 10 percent from 10.25 per cent. Friday's cut was widely anticipated after asurprise move on Thursday by the United States Federal Reserve, which cut interest rates for the second time in less than three weeks.

The positive sentiment spurred by the rates cut was shown at a flat-sale in Hong Kong on Saturday.

Thousands of people queued up at the home-sale and within hours snapped up the 583 flats, the cheapest of which cost HK$2 million (US$256,000) a unit.Such a rush had not been seen since Hong Kong's property prices were still at their peak in 1997. Property prices have fallen some 50 per cent in the past year.

The rate cuts also gave the Hong Kong's blue-chip Hang Seng Index a boost. On Friday, the index rallied 806.59 points, or 8.99 percent, to close at 9,777.01, its highest close since May 12.

Traders have said the institutional buying was expected to continue and support the Hang Seng Index at these higher levels, despite the fact that some of the profit-taking could be seen early this week.