(Refiles, editing paragraphs 2, 3 and 4)
By James Pomfret
HONG KONG, Oct 3 (Reuters) - Hong Kong authorities began inspecting the wreckage of a leisure boat on Wednesday amid questions over how a collision with a commuter ferry in relatively calm weather killed 38 people in one of the city's worst accidents in recent decades.
The exact circumstances surrounding the crash remain unclear, but television footage showed the leisure boat suffered a massive hole in its rear hull, which saw it partially sink, and the ferry with a severely damaged bow.
The director of Hong Kong's Marine Department, Francis Liu, told Hong Kong's Cable Television that the probe could take six months and would look at why one boat sank so quickly.
Hong Kong's new leader, Leung Chun-ying, said a commission of inquiry would be formed to prevent further accidents.
Seven crew members, including the captains of both vessels who were arrested on suspicion of endangering the safety of others at sea, have now been released on bail.
Hong Kong is one of the world's busiest ports but maritime accidents are rare. The tragedy is the worst to hit Hong Kong since 1996 when more than 40 people died in a fire in a commercial building.
The sunken boat, owned by Hongkong Electric, a unit of Power Assets Holdings which is controlled by Asia's richest man, Li Ka-shing, was taking staff and family to Victoria Harbour on Monday night to see a fireworks display when it collided with a ferry heading to Lamma island south of Hong Kong.
The Hongkong Electric boat, which was carrying around 130 people, quickly flooded and sank, trapping passengers underwater, while others jumped overboard.
Three minutes of silence will be observed at noon on Thursday, a day of condolence in the former British colony that returned to Chinese rule in 1997.
Some public anger on Wednesday centred on why the captain of the ferry continued to Lamma island after the collision.
Hong Kong and Kowloon Ferry Holdings, which owns the ferry, rejected accusations that the captain did not stop and said the boat had recently passed a regular safety inspection.
"At this stage, to speculate and say we ignored (the boat) and left is somewhat wrong ... we did immediately stop, and we didn't leave straight after the incident. But as to exactly what happened at that time, we still have to investigate," said Ng Siu-yuen, the firm's general manager, who revealed two relatives of his wife, both children, had died in the sunken ship.
Ng said the 54-year-old captain of the Lamma ferry, who had over 20 years experience, had been shaken by accident.
"The captain, even now when he walks he needs people to support him, and he doesn't really want to speak," he said.
Residents of Lamma, an island popular with tourists and expatriates about a half-hour away from downtown Hong Kong, laid flowers for the victims over the pier. Hongkong Electric pledged HK$200,000 ($25,600) to the families of the dead.
(Additional reporting by Sisi Tang; Editing by Michael Perry)
Keywords: HONGKONG FERRY/