HONG KONG AP The beleaguered Hong Kong economy was hit Tuesday with another string of bad news the key stock index fell nearly 4 percent more companies announced layoffs and the financial secretary hinted at a second straight budget deficit in the next fiscal year. Prominent U.S. think-tank Heritage Foundation said in a report released Tuesday that Singapore has unseated Hong Kong as the world's freest economy. Singapore has been trying to replace the territory as the region's leading financial services provider. The blue-chip Hang Seng Index which fell 3.2 percent Monday plummeted further Tuesday morning falling below the psychological support level of 10000 points at one point. It later reversed course closing the midday session at 10007.98 3.8 percent lower than Monday's close. The index already has shed 6.8 percent since last Friday when the government announced that the economy shrank 7 percent in the third quarter the biggest decline recorded for Hong Kong in the post-War era. ``People are worried about the surge in unemployment high interest rates and falling inflation'' said Michael Ng dealing director at Sassoon Securities. More than 450 people have lost their jobs this week so far as a restaurant closed its doors Monday and two major companies Hong Kong Aircraft Engineering Company and Citibank announced layoffs. Unemployment already at 5.3 percent the highest level since 1981 when officials started collecting such data is expected to climb further. The territory also is bracing itself for deflation as spending continues to fall. Despite the grim economic outlook Financial Secretary Donald Tsang warned in an address to business leaders Tuesday that the government has limited scope to increase spending and to cut taxes as the budget deficit grows. On Monday the government reported that it posted a gaping 50.16 billion Hong Kong dollar U.S. dlrs 6.43 billion deficit in the first seven months of this fiscal year well above an earlier forecast of 21 billion Hong Kong dollars dlrs 2.69 billion for the entire fiscal year. Tsang also hinted at a second straight budget deficit in the next fiscal year beginning April 1 1999. It's unusual for the Hong Kong government which has traditionally followed the credo of never spending more than it brings in to run a deficit two years in a row. In another blow to the battered economy the Heritage Foundation said Hong Kong has lost its title as the world's freest economy to Singapore. At a news conference Edwin Feulner the think-tank's president said the government's unprecedented market intervention in August had cost it the title it had held for three straight years. To drive out speculators who were trying to depress stock prices and drive up interest rates the government launched a stock and stock futures buying spree to prop up share prices and later change the rules in the futures trading to tighten control. Tsang reiterated that the intervention was a one-time action. ``We are not a command economy we are a free economy by any fair measure the freest in the world'' he said. ``Hong Kong will never close its markets to goods or services. We will never have exchange controls.'' APW19981201.0802.txt.body.html APW19981201.0666.txt.body.html