After the close, data revealed that the local unemployment rate fell to a 21/2-year low of 6.8 per cent in the June to August period.

Both the HSI and the H-share index closed above key technical levels, which suggests more gains in coming days, according to traders. A placement of existing shares in Hang Lung Properties at an 8.26 per cent discount after the close may spark concern about more fund raisings ahead, however, and is likely to cap the upside for property plays in particular, they added.

The H-share index, which tracks Chinese enterprises, rose 3.18 per cent, or 138.27 points, to 4,488.15. This meant it broke above the trend line drawn from the January low of 4,481 points which should work as a buy signal, said Linus Yip, a strategist with First Shanghai Securities.

The more upbeat mood, underpinned by three straight days of gains in the China A-share market, pushed all the 38 H-share index members higher yesterday. However, the gains were spearheaded by laggards such as the steel, iron and aluminium counters.

Maanshan Iron & Steel jumped 8.93 per cent to HK$3.05, Angang New Steel added 6.56 per cent to $3.25 and Aluminum Corp of China was up 6.41 per cent at $4.15.

Analysts said the rally in A shares, which was brought on by expectations of more stock market reforms in China, had fuelled hopes that the correction was over and that A shares had bottomed out. That would suggest more upside for H-shares which still generally trade at a discount to their mainland counterparts.

The HSI closed up 0.96 per cent, or 125.44 points, at 13,209.84 - its highest close in seven months and the first above the 13,200 resistance level since March 10.

'We are likely to see further momentum, especially after a few weeks of trading around the 13,000 level,' said Frederick Tsang, head of research at China Everbright Securities, noting that the next target level was 14,000.

The fact that yesterday's gains were accompanied by a rise in total trading volumes to HK$15.87 billion from a daily average of only $10.62 billion earlier in the week, shows buying interest was quite strong when a clear upward direction emerged, one trader said.

HSBC ended flat at HK$123.50, however, which limited the index gains.

China Resources Enterprise was the top blue-chip performer with a 3.52 per cent gain to HK$10.30 amid news that its brewery joint venture with SABMiller had strengthened its position in the mainland's fragmented beer market by acquiring three breweries in eastern China.

Esprit rose 2.91 per cent to HK$38.90 on strong earnings, which prompted a number of analysts to upgrade their earnings forecasts for the retailer. CLSA's Paul McKenzie called the forecast-beating 55 per cent rise in this year's net profit performance 'spectacular' and raised his target price by 30 per cent to $50.

Merrill Lynch analyst Jeanine Angell boosted her target to HK$46 from $40 and projected 33 per cent earnings growth next year.

Demand for property stocks was also strong, despite persistent rumours about share placements in the sector, and the sub-index rose 1.57 per cent. Positive research reports on the sector in recent days from the likes of UBS, Macquarie and BNP Paribas Peregrine contributed to the positive sentiment, traders said.

Henderson Land added 1.88 per cent to HK$38 and Cheung Kong was up 1.46 per cent at $69.50.

Hang Lung Properties closed 1.68 per cent higher at HK$12.10. After the close, HSBC said it had placed $2.1 billion worth of shares at $11.10 each in the developer that had been 'left over' from a deal that went wrong eight years ago.

Bulk shipping company Pacific Basin Shipping jumped 15.69 per cent to HK$2.95 after reporting that its first-half net profit rose more than sixfold thanks to booming global trade. The carrier also said a full-year profit of US$65 million, as forecast in the prospectus for its June listing, was now looking conservative.