HONG KONG, May 8 (Reuters) - The Hong Kong Monetary Authority (HKMA) on Friday urged investors to be cautious, saying hefty fund inflows could inflate asset prices in the territory, while local economic conditions remained difficult.
Heavy demand for the Hong Kong dollar, which is said by the market to be heading into the stock market, has forced the city's central bank to inject funds into the money market in recent weeks to keep the local currency within its trading band against the U.S. dollar.
"This will affect Hong Kong asset prices on all fronts, including stocks. There is no (fundamental) economic support yet, so we hope people will carefully manage their risks," HKMA chief Joseph Yam told reporters.
Hong Kong's benchmark Hang Seng Index rose for a sixth consecutive day on Thursday to close at 17,217.89, its best closing level since October last year.
Hong Kong stocks have risen 18 percent so far this year.
The HKMA stepped in again overnight, selling US$550 million worth of Hong Kong dollars during New York trading hours, lifting the total balance -- the sum of balances on clearing accounts maintained by banks with the HKMA -- to a record HK$211.033 billion by May 11.
The authority had issued extra exchange fund bills to absorbe some of the funds, otherwise the aggregate balance would have been about HK$300 billion, Yam said.
The market has been flooded by equity-related funds as signs of economic recovery in China lifted sentiment and attracted foreign investors, dealers said.
Since April 21, the HKMA has injected a total of HK$58.67 billion into the banking system, including Thursday's intervention. (US$1=HK$7.75) (Reporting by Donny Kwok; editing by Chris Lewis)