Abundant liquidity had pushed stocks upwards during the morning session before they were met with resistance at about the 11,400-point level.

With the blue chips dominating, market watchers said trade had been driven by institutional investors and hedge funds.

'It's very volatile. Turnover is the highest it's been for years, with stocks riding on liquidity and the weaker [US] dollar. Such frantic trading is bound to make some stocks look pricey,' said Herbert Lau Chung-kwan, the research head at Celestial Asia Securities.

Analysts said the combination of a weak US dollar and upward pressure on the Hong Kong dollar had forced interest rates lower, making the territory increasingly appealing to outside investors.

Mr Lau said that as long as turnover remained high, Hong Kong stocks would continue their upward trend in the medium term.

Banking stocks rang in the biggest gains as the market bet a stronger economy would lead to higher asset and property prices, therefore increasing demand for mortgages and loans.

Phillip Securities research director Louis Wong Wai-kit said: 'There are clear signs property is picking up and investors are looking at higher earnings growth for the banks next year as more people apply for loans.'

BOC Hong Kong, the local arm of the mainland's biggest lender, led blue-chip gainers by rising 5.14 per cent to $11.25.

The stock is also expected to benefit strongly from rules that will soon allow banks in the territory to do business in yuan.

Bank of East Asia jumped 4.88 per cent to $20.40 while the index's biggest stock HSBC kept up its recent rally, firming 0.96 per cent to $105.

Mid-tier lenders Wing Hang Bank leapt 3.5 per cent to $41.30 while Wing Lung Bank rose 2.74 per cent to end the session at $45.

Some investors switched out of property plays following Wednesday's stellar performance which saw the properties sub-index soar 7.17 per cent.

Cheung Kong slumped 4.29 per cent to $61.25. However, Hong Kong's biggest developer by sales Sun Hung Kai Properties rose 0.39 per cent to $64 before its annual results announcement after the market close.

Henderson Land Development gained 1.23 per cent to $32.70. Pundits said heavy losses on Wednesday on Wall Street where the Dow Jones Industrial Average slid 1.57 per cent had contributed to the afternoon snap-back.

Esprit also took a tumble, slumping 4.05 per cent to $22.50 after a strong rally on the back of an expected rise in business due to more mainland tourists.

Key Figures

Close: 11,286.52 (-9.37)

Turnover: $21.35 bln

Volume: 16.98 bln shares

Day's high: 11,444.72

Day's low: 11,230.24

Advanced: 381

Declined: 489

Unchanged: 416

September futures: 11,351 (+10)

October futures: 11,344 (-)