(Adds midday trading levels)
HONG KONG, Oct 24 (Reuters) - Hong Kong's key share index was lower by midday on Thursday as mild profit-taking set in following recent gains, but traders said they did not expect the index to fall much further.
The benchmark Hang Seng index eased 85.69 points or 0.87 percent to 9,718.96 by midday after rising 2.68 percent on Wednesday.
"The Hang Seng outperformed Wall Street (on Wednesday), but near term selling pressure should not be that great," said Kenny Tang, associate director at Tung Tai Securities.
Tang said he expected the HSI to trade in a range of 9,700-9,900 points.
"There will be ups and downs on Wall Street, but I think we are still in the midst of a mini rally," said Herbert Lau, associate director at Celestial Asia Securities.
Traders see near term HSI resistance at around 10,000.
The blue chip Dow Jones industrial average advanced 44.11 points or 0.52 percent to 8,494.27 on Wednesday. The technology-loaded Nasdaq Composite index rose 2.12 percent to 1,320.23.
Turnover in Hong Kong reached HK$2.96 billion (US$379 million) on Thursday morning.
HSBC, Hong Kong's biggest stock by market capitalisation, was the biggest drag on the blue chip index, taking more than 34 points off the HSI as the stock fell 1.14 percent to HK$86.50 on turnover of HK$278 million.
The shares were tracking a fall in the bank's London-listed shares.
Just minutes before the stock market opened, international credit rating agency Standard & Poor's cut its outlook on Hong Kong's long-term local currency rating to negative from stable, citing the weakness of the local economy and the growing budget deficit.
"The negative outlook on the local currency ratings reflects persistent fiscal pressures brought about by the ongoing economic changes in the territory," said Ping Chew, associate director at S&P.
The rising deficit is increasing pressure on the government to change the way it taxes and spends, and has raised concerns about its commitment to the 19-year-old currency peg to the U.S. dollar, which some businessmen complain is sapping Hong Kong's competitiveness.
But analysts said the S&P announcement had little impact on the stock market, which has already factored in weakness in the economy.
Fixed-line phone giant PCCW was down 0.84 percent at HK$1.18 after gaining more than nine percent on Wednesday.
But Chinese telecom and technology stocks bucked the down trend, with the mainland's 7.9 percent gross domestic product growth rate looking bright compared to dim prospects in most of the world's other major economies.
China Unicom , the number two carrier in the world's largest mobile phone market by subscribers, saw its shares edge up 0.92 percent to HK$5.50.
China's top computer maker Legend Holdings , rose 0.91 percent to HK$2.775. The company has the largest share of the personal computer market in Asia excluding Japan.
Tsingtao Brewery was up 4.2 percent at HK$3.725. China's largest and best known beer maker signed an agreement this week with Anheuser-Busch under which the world's number one brewer will increase its stake in Tsingtao via a US$182 million deal over seven years.
Tsingtao shares were suspended for two days pending details of the deal.
(US$=HK$7.8)