A public confidence crisis caused by the lack of progress in the fourth round of talks with China over the future of this British colony has spurred a nose dive in the financial markets and a rash of hoarding and price increases throughout the commercial sector.

Residents here crowded grocery stores this weekend filling their shopping carts with supplies as a hedge against inflation following the unsuccessful talks in Peking Friday. Camera stores raised their prices by at least 5 percent on Friday morning, as concern spread even before the latest talks were finished. The Hong Kong dollar, once one of Asia's more stable currencies, slid nearly 8 percent in trading yesterday to 9.55 against the U.S. dollar. And the price of gold hit a 3 1/2-year high on the local market of 4,705 Hong Kong dollars per tael.

British and Chinese negotiators are seeking to reach an agreement over control of Hong Kong after Britain's lease on 90 percent of the colony's land expires in 1997. China has vowed to reclaim the entire territory. The next round of talks will be Oct. 19 and 20.

The talks appear to be stalemated over the British argument that it should retain some link to Hong Kong's administration after the expiration of the lease. The Chinese have maintained that sovereignty and administration are inseparable.

As of tonight, analysts were saying they saw no reason that the Hong Kong dollar would not sink to 10 against the U.S. dollar this week. Yesterday many banks refused to sell any U.S. banknotes while some placed a limit on individual purchases in the range of $2,000.

"We joked that it the Hong Kong dollar might fall past the psychologically important mark of eight to the pathologically important mark of nine, but it isn't so funny any more," said a local analyst. "This isn't just speculation. People's fears seem well-grounded in the absence of any positive statement from either side."

Public reaction heightened when the official Hong Kong trading arm of the Peking government, China Resources, hinted that it might link the prices of Chinese exports to the colony not against the U.S. dollar but against a "third currency."

Last year China exported about 32.9 billion Hong Kong dollars worth of goods to the territory, which depends heavily on the mainland for food and water. Yet many local Chinese thought the statement was ironic since public sentiment blames China's inflexbility over the lease issue for the current financial uncertainty. In all other respects, say local brokers, the Hong Kong economy's fundamentals point to a strong export-led recovery.

"On PE price earning ratings, on any basis, compared to international markets, it's one of the best," said an American broker. "Under any other political circumstances but these, the market would stand double what it is today." On Friday, the local Hang Seng index dropped 63.58 points down to close at 785.48. Doubt Over Hong Kong Spurs Hoarding of Food By Dinah Lee Special to The Washington Post

HONG KONG, Sept. 25--A public confidence crisis caused by the lack of progress in the fourth round of talks with China over the future of this British colony has spurred a nose dive in the financial markets and a rash of hoarding and price increases throughout the commercial sector.

Residents here crowded grocery stores this weekend filling their shopping carts with supplies as a hedge against inflation following the unsuccessful talks in Peking Friday. Camera stores raised their prices by at least 5 percent on Friday morning, as concern spread even before the latest talks were finished. The Hong Kong dollar, once one of Asia's more stable currencies, slid nearly 8 percent in trading yesterday to 9.55 against the U.S. dollar. And the price of gold hit a 3 1/2-year high on the local market of 4,705 Hong Kong dollars per tael.

British and Chinese negotiators are seeking to reach an agreement over control of Hong Kong after Britain's lease on 90 percent of the colony's land expires in 1997. China has vowed to reclaim the entire territory. The next round of talks will be Oct. 19 and 20.

The talks appear to be stalemated over the British argument that it should retain some link to Hong Kong's administration after the expiration of the lease. The Chinese have maintained that sovereignty and administration are inseparable.

As of tonight, analysts were saying they saw no reason that the Hong Kong dollar would not sink to 10 against the U.S. dollar this week. Yesterday many banks refused to sell any U.S. banknotes while some placed a limit on individual purchases in the range of $2,000.

"We joked that it the Hong Kong dollar might fall past the psychologically important mark of eight to the pathologically important mark of nine, but it isn't so funny any more," said a local analyst. "This isn't just speculation. People's fears seem well-grounded in the absence of any positive statement from either side."

Public reaction heightened when the official Hong Kong trading arm of the Peking government, China Resources, hinted that it might link the prices of Chinese exports to the colony not against the U.S. dollar but against a "third currency."

Last year China exported about 32.9 billion Hong Kong dollars worth of goods to the territory, which depends heavily on the mainland for food and water. Yet many local Chinese thought the statement was ironic since public sentiment blames China's inflexbility over the lease issue for the current financial uncertainty. In all other respects, say local brokers, the Hong Kong economy's fundamentals point to a strong export-led recovery.

"On PE [price earning] ratings, on any basis, compared to international markets, it's one of the best," said an American broker. "Under any other political circumstances but these, the market would stand double what it is today." On Friday, the local Hang Seng index dropped 63.58 points down to close at 785.48.