Another US rate cut following a string of three cuts since September last year is now considered unlikely, with concern mounting about the pace of the US economic expansion. The US economy recorded a 5.6-per cent annual growth rate in the fourth quarter last year.

A relaxed US monetary policy supplied strong support to financial markets unnerved by the persistent global crisis, allowing Asian markets to rally despite weak recovery prospects.

"We've been saying for a long time that the fundamentals don't support (Asian) markets at current levels and that it was basically liquidity of one form or another coming in," said Robert Rountree, head of research atPrudential-Bache Securities. That lack of fundamental support for recent share market rallies made the region vulnerable to any switch in sentiment such as that supplied by the changing US rate outlook, he said.

Hong Kong is the most vulnerable market in Asia, due largely to its fixed exchange rate system, and is expected to suffer the most from changing US rate expectations, analysts said.

"The one market which is the most problematic in Asia is Hong Kong where the exchange rate seems fairly overvalued," ING Barings Asia strategist Paul Schulte said recently. High interest rates to support the Hong Kong dollar at a rate of HK$7.80 per US dollar have forced a radical adjustment in the Hong Kong economy, with retail sales, exports and property valuations continuing an extended decline. "We're still in a severe recession and deflation mode,which is hardly good news for earnings and all those other things stock markets like," said Peter Churchouse, managing director at Morgan Stanley Asia. But there is agrowing dichotomy between market expectations in Hong Kong and the rest of the region. Asia benefited partly from the deepening Brazil crisis,which soured sentiment towards Latin America and reminded investors of Asia's depressed valuations.

ING Barings said other factors benefiting Asia included a weaker US Dollar, improved external balances as well as low inflation and high liquidity expectations.

China, South Korea, Singapore and, to some extent, Thailand have all taken very proactive steps to reform and restructure, which will support their markets in the short and medium term, said Churchouse. Hong Kong, by comparison, is suffering from a lack of policy direction or evidence of commitment to allowing economic adjustment. "We are not getting those signals at all out of Hong Kong and virtually every investor I talk to remarks on that," he said.

"Strategic direction is seen as very weak by comparison with other countries in the region, China in particular."

Views are not uniformly negative,however.

Rountree said global liquidity conditions remain sufficiently lax to allow another upswing in Asian stocks soon.

"There is enough global liquidity that we could easily see another move back into these markets," he said.