KUALA LUMPUR, Jan 9 (AP) -- Hong Kong expects to approve a legislation exempting offshore funds from paying profit tax by March in a move aimed at luring foreign investors to set up operations in the Chinese territory, a top Hong Kong government official said Monday.

Frederick Ma, secretary for financial services and the treasury, said plans to abolish the 17.5 percent profit tax on offshore funds trading in Hong Kong securities would be a "big attraction" for foreign investors and help deepen liquidity in the stock market.

"We are hoping this legislation will be passed in the first quarter of this year," he told reporters here on the sidelines of an investors conference here. "This will put us at par, if not more favorable, with some financial centers like the U.K. and the U.S."

To avoid paying high taxes, many investment funds are based in places such as the Cayman Islands, the British Virgin Islands and Mauritius.

The Hong Kong stock exchange, ranked the eight largest in the world and second in Asia after Tokyo, has grown rapidly since 1983, when it allowed companies from mainland China to list on the bourse, he said.

A tight regulatory regime, strong corporate governance and low transaction costs are among other factors that have enhanced investors' confidence, he added.

More than 60 percent of funds managed in Hong Kong are from foreign investors, he said.

Ma said Hong Kong's fiscal position has "improved significantly" since last year in line with a stronger economy and that trend is expected to continue.

He declined to comment on whether the government could achieve a balanced budget earlier than expected, saying details will be announced when the government unveils its new budget on Feb. 22.

The government has revised upward its forecast for economic growth for the fiscal year ending March 2006 to 7 percent from 4.5-5.5 percent previously, he added.