Hong Kong shares rose 3.38 percent after Wall Street gave a resounding thumbs up to the US government's decision to rescue Citigroup, while resurgent oil prices helped energy stocks notch up big gains.

But some investors raised concerns over sharp swings in share prices during the 10-minute closing auction, ahead of the quarterly rebalancing in the MSCI Barra indices. Last week, market regulators warned investors about share price and turnover volatility during the MSCI index readjustment, which became effective yesterday.

"Stocks that are removed from the index are sold down sharply and those that are added are marked at a premium during the closing auction, supporting speculation and share price manipulation," said Andrew To, sales director with Tai Fook Securities.

"This is a bit like playing in a casino and gives long-term investors an uneasy feeling."

Two local brokers cited China Southern Airlines, which fell nearly 9 percent during the closing auction to take the day's total losses to 12.63 percent, and China Eastern, down 10.96 percent, as examples of shares heavily offloaded in the final 10-minute window.

China's top lender, ICBC, surged 9.25 percent after Goldman Sachs added it to its conviction "buy" list, citing its lower risk profile and less net interest margin pressure than its peers.

The benchmark Hang Seng Index (HSI) ended 420.66 points higher at 12,878.60 after rallying above 13,000 points earlier.

Other regional markets also rose, but a drop in the mainland bourses limited gains in the local market.

"We were waiting for an indication from Wall Street on how the Citi bailout should be received, as the local interpretation of the rescue is quite different from what US investors think," said Y K Chan, strategist with Phillip Capital Management.

Hong Kong shares fell on Monday after the Citigroup bailout plan failed to ignite buying, but US stocks surged as the plan eased investor concerns over the financial sector.

Chan added, however, that overall weakness in the economy had limited gains and the market could still fall below its October low in the absence of new stimulus plans from the US and China.

Mainboard turnover rose to HK$41.2 billion from HK$35 billion on Monday.

The China Enterprises Index of top locally listed mainland firms rose 4.41 percent to 6,658.

Reuters

(HK Edition 11/26/2008 page3)