The government said in a statement it would provide HK$10 billion in liquidity to the commercial lending market for SMEs and guarantee up to 70 per cent of the loans.

'The SME sector is a pillar of Hong Kong's economy and the government is highly concerned about the difficulties it faces during the present liquidity crunch,' a spokesman said in the statement.

'We hope that these additional measures will help provide SMEs with more flexibility and convenience in obtaining the necessary capital to maintain their operations and develop new markets.'

The move is the latest attempt by the government to boost the ailing sector, which is struggling from slowing demand. The government has already eased rules on people looking to export goods.

The spokesman said the scheme was time limited, but did not specify when it would expire.

The maximum amount of loan that each SME may obtain from a lending institution included in the scheme was one million dollars, the statement said.

Hong Kong's economy has boomed in recent years on the back of strong growth in China and a flourishing financial industry. But the economic crisis has raised fears the southern Chinese city could be heading for a severe slowdown.

In recent weeks, Hong Kong authorities have guaranteed bank deposits and tried to shore up interbank lending, in an unusual move for a city that prides itself on a laissez-faire economic approach. -- AFP