By Grace Li
HONG KONG (Reuters) - Hong Kong on Wednesday scrapped travel sanctions against the Philippines after Manila offered an apology and compensation for a hostage tragedy almost four years ago, settling a lengthy diplomatic spat between the two.
Hong Kong and the Philippines have close economic ties, with more than 150,000 Filipino domestic helpers working in the city.
But emotions still remain raw over the 2010 killing of eight Hong Kong citizens in Manila by a sacked Filipino policeman after their tourist bus was taken hostage in a day-long siege.
After a prolonged standoff and negotiations, the gunman opened fire. Many Hong Kong residents watching the drama unfold on live television blamed the deaths on what they considered to be a botched handling of the crisis by Philippine authorities.
Both sides had now reached a "consensus" on resolving the rift, Hong Kong's leader, Leung Chun-ying, told reporters following a meeting with Manila mayor Joseph Estrada and an envoy of Philippine President Benigno Aquino in Hong Kong.
The victims' families said they too were satisfied with the Philippine government's apology, its offer of additional compensation, a pledge to punish officials who dealt with the crisis and a commitment to enhance tourist safety.
"The Philippine Government expresses its most sorrowful regret and profound sympathy, and extends its most sincere condolences for the pain and suffering of the victims and their families," both governments said in a joint statement.
Leung said the agreement heralded a "normalization of bilateral relations" between the two sides.
"I ... believe that the bilateral relations between the peoples of Hong Kong and the Philippines will start a new chapter," Leung told reporters.
While the compensation amount offered by Manila has not been disclosed publicly, media reports said it was around HK$20 million ($2.6 million).
"It is reasonable and acceptable," said James To, a lawmaker representing the victims' relatives, of the compensation.
In January, Hong Kong scrapped visa-free access for all Philippine diplomatic and official passport holders after Manila failed to issue a formal apology. Leung said this sanction would be lifted with immediate effect.
The former British territory of Hong Kong returned to Chinese rule in 1997 but retains a high degree of autonomy over its affairs.
The strain in ties between the city and the Philippines comes during a sharp deterioration in relations between Beijing and Manila over overlapping claims of potentially oil- and gas-rich waters in the South China Sea.
China too had urged the Philippine government to settle the dispute and to respect the lawful demands of victims' families.
Philippine President Benigno Aquino had previously ruled out apologizing for the violence, saying the act of a disturbed individual should not be attributed to a whole country. ($1=7.7527 Hong Kong Dollars)
(Editing by James Pomfret)