HKMA intervenes to defend HK dollar peg, sells HK$5.2 bln

HONG KONG, July 1 (Reuters) - The Hong Kong Monetary

Authority (HKMA) stepped into the currency market on Tuesday,

selling HK$5.2 billion ($677 million) in Hong Kong dollars as

the local currency hit the strong end of its trading range.

The HKMA said in an emailed statement the intervention

stemmed from increased demand for the local dollar, "reflecting

in part the increased corporate demand due to commercial

activities, including merger and acquisition activities and

dividend distribution".

According to the city's de facto central bank, the latest

intervention will lift the aggregate balance - the sum of

balances on clearing accounts maintained by banks with the HKMA

- to HK$169.110 billion on July 3.

The Hong Kong dollar is pegged at 7.8 to the U.S. dollar,

but can trade between 7.75 and 7.85. Under the currency peg, the

HKMA is obliged to intervene when the Hong Kong dollar hits 7.75

or 7.85 to keep the band intact.

With short term interest rates in Hong Kong near zero, the

latest round of intervention, which injects local funds into the

banking system, is "unlikely to produce any material effect on

the Hong Kong interbank interest rates," the HKMA said.

($1 = 7.7500 Hong Kong dollars)

(Reporting by Saikat Chatterjee and Twinnie Siu; Editing by Ron