A spokesman for the HKMA, the city's de facto central bank, said there had been increased demand for Hong Kong dollars in recent days.

'Taking into account market conditions, the HKMA operated within the convertibility zone, purchasing US dollars against Hong Kong dollars,' he said in a statement.

The statement said the aggregate balance was projected to increase by HK$ 3.88 billion to HK$17.96 billion as a result of the action.

Under Hong Kong's currency system, the HKMA is committed to defending the peg of HK$7.80 to the US dollar, but it allows the local currency to move within the HK$7.75-7.85 range.

At 4.00pm, the Hong Kong dollar depreciated slightly to 7.7533 to the US dollar, from a high of 7.7521 at 2:00 pm. The intervention was announced at around 2.30pm.

Traders said Hong Kong's decision to guarantee all bank deposits until 2010 may have contributed to the move.

'I won't be surprised if there are more interventions to come,' said an unnamed trader at a local bank, according to Dow Jones Newswires.

He said he saw a large amount of fund inflows as investors sought to take advantage of Hong Kong's full deposit guarantee scheme.

'Many investors are trying to park their funds in Hong Kong, which is a more stable market amid the volatile global financial situation,' the trader said.

The Hong Kong authorities have always insisted since that there would be no change to the peg and over the years have resisted all attempts by speculators to force their hand.

Chief Executive Donald Tsang reiterated his commitment to the peg last week, despite worries that the greenback could lose some of its value.

During the 1997-1998 Asian financial crisis several currencies around Asia were de-pegged under severe pressure from speculators, but Hong Kong maintained the link despite having to raise interest rates to spectacular levels.

The latest injection comes after the HKMA bought HK$4.0 billion worth of US dollars on Monday to boost interbank liquidity. -- AFP