Hong Kong stocks fell, with the key index having its biggest drop in three weeks, after oil prices rose to a two-week high, raising concerns that fuel costs will trim earnings at companies such as Yue Yuen Industrial (Holdings) and Cathay Pacific Airways.

"We are a little bit worried about the impact of fuel-cost increases on corporate earnings,'' said Agnes Deng, of Standard Life Investments in Hong Kong.

"We still haven't seen any strong catalysts to remove that concern.'' She favors oil producers such as PetroChina over airlines stocks.

The Hang Seng lost 78.58, or 0.56 percent, to 13,939.80, its biggest drop since April 18. The Hang Seng China Enterprises Index dropped 0.8 percent to 4719.37.

Yue Yuen, the world's largest maker of branded sports shoes, slid 35 cents, or 1.5 percent, to HK$22.85. The company's earnings in the year ended September 30 fell as prices for petroleum-based materials, used to make footwear, surged.

Airlines fell amid concern that the cost of jet fuel, a product of crude oil, will rise.

Cathay Pacific fell 5 cents, or 0.4 percent, to HK$14.35. Fuel accounted for 24 percent of Cathay Pacific's operating costs. China Eastern Airlines, the country's third-biggest carrier by sales, dropped 3 cents, or 2.1 percent, to HK$1.40.

None of the 33 members that make up the Hang Seng Index advanced Wednesday. The benchmark's May futures fell 0.7 percent to 13,878.

Melco International Development, controlled by the family of Macau casino tycoon Stanley Ho, halted trading of its shares pending an announcement on ``very substantial acquisitions and a connected transaction.''

The stock fell 70 cents, or 3.5 percent, to HK$19.40. Pacific Century Insurance Holdings lost 7.5 cents, or 2.3 percent, to HK$3.125. The smallest of five Hong Kong-listed insurers said first-quarter profit fell 54 percent to HK$50.2 million, as it made less money from investments.

Investors said the ebb and flow of speculation about a yuan revaluation would provide bouts of volatility in coming weeks.

But the larger picture of further potential US interest rate increases and slowing global growth were more likely to have a longer term impact on market direction.

``Markets could drift down if moderating slower global growth disappoints investors,'' said Mark Konyn, CEO of Allianz Dresdner Global Investors, which manages about US$15 billion (HK$117 billion) in the region.

H shares were harder hit with traders citing cooling expectations of a yuan revaluation and worries China may introduce further measures to cool its searing economy.

H shares fell 0.84 percent to 4,719.37. China's largest copper producer Jiangxi Copper fell 4 percent to HK$3.62.

Mainland automaker Geely automobile dropped nearly 11 percent to HK$0.41 after an announcement that Geely Group has bought a controlling stake in the firm for HK$153 million.

The mainland's largest oil producer PetroChina was one of the few large cap gainers of the day, up 0.5 percent to HK$4.87 on surging world oil prices.

BLOOMBERG, REUTERS