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UPDATE 2-Hong Kong rates hit 2008 peaks, HK$ jumps before jumbo IPO

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UPDATE 2-Hong Kong rates hit 2008 peaks, HK$ jumps before jumbo IPO

* HIBOR rises across the curve, several tenors at late-2008 levels

* AB InBev seeks $9.8 bln in HK listing of Asia unit in July

* HK$ rallies on climbing rates; ‘carry trade’ squaring – analyst (Add detail on protests and impact on market)

By Noah Sin

HONG KONG, July 4 (Reuters) – The Hong Kong Interbank Offered Rate (HIBOR) rose across the curve on Thursday, with investors scrambling for cash ahead of the world’s biggest initial public offering of the year at a time of tight liquidity in the domestic market.

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Brewer Anheuser-Busch InBev NV (AB InBev) is seeking to raise up to $9.8 billion by listing its Asia-Pacific business in Hong Kong this month.

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On Thursday, the one-month and two-week tenors shot up to 2.99% and 3.53%, respectively, their highest since October 2008, while two-month and three-month HIBOR reached their highest levels since November of the same year.

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New York-listed internet giant Alibaba is also hoping to raise up to $20 billion in Hong Kong’s stock market this year, which would be the largest secondary listing globally in seven years.

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“We haven’t seen such a large IPO for a while, and it is happening during the dividend season when liquidity is usually tight,” said Carie Li, an economist at OCBC Wing Hang Bank, commenting on the AB InBev listing.

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Analysts from Bank of America Merrill Lynch estimated in May that Hong Kong-listed Chinese companies will need to pay $55 billion of dividends this year, mostly in June and July.

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On top of equity market demand, “you also have carry trades squaring their positions,” Li added

A previously wide spread between U.S. and Hong Kong rates led investors to borrow the Hong Kong dollars cheaply to buy higher-yielding U.S. dollar assets in a ‘carry trade’, spurring capital outflows and pressure on the local currency

But that gap by-and-large closed in June. The Hong Kong dollar rose 0.33% against the greenback that month, its largest monthly gains since September 2008

HIBOR’s climb lifted the Hong Kong dollar to its strongest since May 2017 on Thursday. The currency was seen at 7.7841 per dollar

Demand for cash had also surged in June as protesters clashed with police during a mass demonstration against legislation that would allow citizens to be extradited to China. Financial institutions rushed into liquid assets, with interbank interest rates in the city shooting up across the curve

Traders said the interest rate spike this time, however, was driven mainly by the city’s mega IPO although demand for cash had also bolstered the local currency

Earlier this week unrest gripped the city again as hundreds of protesters in the former British colony stormed and ransacked the legislature after a demonstration marking the anniversary of Hong Kong’s return to Chinese rule

Additional reporting by Donny Kwok; Editing by Kim Coghill and Jacqueline Wong