Establishment of chronic hepatitis B virus (HBV) infection requires induction of immune tolerance by hepatitis B e antigen (HBeAg) and excess envelope proteins in the form of subviral particles. The subsequent immune clearance phase rather selects for core promoter mutations and SPII promoter deletions. Both types of mutations and HBx protein, a transcriptional transactivator, have been implicated in the development of hepatocellular carcinoma (HCC). The core promoter drives transcription of the 3.5-kb pc RNA for HBeAg and slightly shorter pg RNA for genome replication, while the SPII promoter drives the 2.1-kb RNA for the middle and small (S) envelope proteins. Core promoter mutations diminish HBeAg expression but enhance genome replication through transcriptional up regulation of pg RNA at the expense of pc RNA. Surprisingly, mutations conferring the highest level of genome replication reduced S protein level. Since all the four classes of HBV transcripts are unidirectional and co-terminal at the 3' end, our interpretation is that the 3.5-kb RNAs interfere with transcription of the 2.1-kb RNA by promoter occlusion. To verify this hypothesis, the impact of deleting the core promoter or replacing it with the strong CMV promoter on transcription of the 2.1-kb RNA will be determined. To examine whether the 2.1-kb RNA interferes with transcription of the 0.7-kb RNA for HBx protein, we will establish whether SPII promoter deletions found in HCC patients up regulate HBx transcript. Finally, since the 3' end of all the transcripts overlaps with the 5' end of the terminally redundant 3.5-kb RNAs, the abundant 2.1-kb RNA has the potential to inhibit transcription of the 3.5-kb RNAs. This will be verified by examining the replication impact of SPII promoter deletions in the context of a circularized HBV genome in contrast to vector-linked dimeric construct. We propose that bidirectional transcriptional interference allows HBV to effectively coordinate its genome replication with envelope and HBx protein expression. We previously found that core promoter mutations enable the HBx protein expressed alone (and at high level) to trigger cell proliferation. Transcriptional interference will allow SPII promoter deletions to markedly augment HBx protein expression from the intact genome. Thus, the two types of mutations could work synergistically with HBx protein to promote hepatocarcinogenesis. In summary, this application explores a novel mechanism of HBV transcriptional regulation and at the same time connects the three viral factors in HCC development.