The loss of confidence that would accompany a devaluation in China's currency would wreak havoc in the Hong Kong economy, even though a cheaper yuan would benefit Hong Kong in the longer term, analysts said.

''The perception is that China is the major support for Hong Kong, and the more you believe in it, the more negative the impact (of a yuan devaluation) could be,'' said Nicholas Kwan, regional chief economist for Merrill Lynch in Hong Kong.In such a situation, a psychological crisis could quickly become a real crisis as investors stayed away from Hong Kong, fearing the Hong Kong dollar-U.S. dollar peg would break, said Patrick Smith, managing director of Hong Kong's Oakreed Financial Services Ltd.

''The whole negative sentiment feeds on itself,'' he said.

The last major yuan devaluation occurred in January 1994. At that time, the Hong Kong dollar fell by less than 0.5 percent, from a high of $7.7280 in January to $7.7545 in February, before settling back to $7.7295 in March.

If a devaluation occurred today, the Hong Kong dollar would be hit much harder because the sharp declines other regional currencies - especially in the Indonesian rupiah - has already weakened confidence in the region as a whole, a trader said.

''The (exchange rate) would surge to around $8.00 or even worse if the (yuan) devalued,'' he predicted.

A fall in the value of China's currency would certainly hit Hong Kong: As investors pull China-related capital out of Hong Kong financial institutions, the psychological impact could spark a capital flight from Hong Kong's broader financial marketplace, Mr. Kwan said.

In the longer term, however, a yuan devaluation could also turn into an economic bonanza for Hong Kong's trade.

A devaluation would theoretically boost China's exports by making them more competitive, and since many of those exports would pass through Hong Kong, it could benefit from a corresponding increase in value-added service demand, Mr. Kwan pointed out.

''In the long run, it is beneficial to Hong Kong (for China) to have a weaker yuan,'' he said.

Hong Kong's exports could also increase if the yuan devalued. Since some of Hong Kong's exports are really Chinese-manufactured items that have had some value added in Hong Kong, a yuan devaluation ''would single handedly make Hong Kong's so-called exports more competitive,'' said Ian Perkin, Greater Hong Kong Chamber of Commerce chief economist.

It would also benefit Hong Kong consumers, he said.

''The man on the Hong Kong omnibus is very much interested in how it hits his pocket and a devaluation of the (yuan) should make supermarket prices for goods imported from China cheaper,'' he said.

Analysts said China wouldn't allow a yuan devaluation because the country would have too much to lose. Even the hotly debated most-favored-nation status could be jeopardized as Chinese exports would become much cheaper under a devaluation and China's trade surplus would blossom, Mr. Perkin said.