IN THE end, the local market could manage only one day back in the black, before investors retreated to the sidelines ahead of the United States Federal Reserve's deliberations on US interest rates.

This nervousness sent the Straits Times Index (STI) backwards by 25.99 points to close at 2,571.31 yesterday. Most STI components lost ground. The benchmark had lost ground for four straight sessions prior to Monday's upswing.

The US Federal Open Market Committee is due to meet early this morning. Market watchers expect the Fed to recognise that economic growth is recovering, but will still keep the interest rate steady at its near record low level.

Another factor weighing on the minds of local investors was the weaker Wall Street close on Tuesday: the Dow Jones Industrial Average lost 1.03 per cent to close at 9,241.45 points.

The STI's showing was in line with that of regional bourses, which were weaker overall, led by the Shanghai Composite Index, which took a sharp dive of 4.66 per cent to close at 3,112.72.

Dealers said fears that the Shanghai stock market rally was liquidity-driven and not based on fundamentals had reared their head again.

The Hang Seng Index sank 3.03 per cent to 20,435.24. The Singapore market mirrored the Hong Kong market by rising in the morning. But by the afternoon, the index had sagged.

While turnover rose from Tuesday's 2.1 billion shares to 2.3 billion shares yesterday, the value of the shares was only $1.9 billion, down from $2 billion on Tuesday.

Decliners included the Singapore banks. DBS Group Holdings closed 30 cents weaker at $12.62, United Overseas Bank ended 20 cents lower at $16.40, and OCBC Bank inched down by three cents to $7.67.

Property counters such as City Developments (CDL) also ended weaker. CDL, which is reporting second-quarter results today, lost 15 cents to $9.83, while Fraser & Neave ended five cents lower at $3.93. CapitaLand fell 11 cents to $3.64.

Banks and property developers are sectors that are directly affected if there is any change in interest rate levels.

Trading action was dominated by Genting Singapore, which turned in a volume of 200.5 million shares. The stock rose three cents to 89.5 cents yesterday.

Commodity player Golden Agri-Resources was again among the actives. It closed unchanged at 47.5 cents on a volume of 150.4 million shares. It is due to report second-quarter results tomorrow.

Yet another stock in the limelight was China Hongxing, which weakened by two cents to 18.5 cents on a volume of 101.4 million shares.

Ascendas Reit units fell following news of the Reit's placement of shares to raise about $300 million to fund the development of a facility and for future purchases. The new units are priced at $1.63.

Yesterday, Ascendas Reit units closed at $1.67, down nine cents. A CIMB report said that while yields were still attractive, other Reits may be more attractively priced.

sushyan@sph.com.sg