The Hang Seng Index edged higher yesterday on the strength of banking shares but failed to recover most of Monday's steep losses. The index showed resilience in the face of a fall in US stocks on Monday and renewed fears that interest rates would soon rise. The Hang Seng Index closed up 39.58 points at 10,929.63, a gain of 0.36 per cent on the heels of a 2.5 per cent fall on Monday. Turnover was $4.21 billion, down from $6.24 billion the day before. The index gained from the opening, then traded above the 10,900-point level through the day. K.K. Low, sales and development manager at Dao Heng Securities said the 10,900-point level would offer support until US inflation figures were released on Friday and Monday. 'If the inflation figures are strong, it will reinforce the expectation that interest rates will rise,' Mr Low said. Banking shares dominated trade yesterday, with the Hang Seng financial sub-index closing at 10,514, up 65 points, or 0.62 per cent. Despite the sector's sharp fall on Monday, analysts remained bullish on banks. Henri Lui, banking analyst at Mansion House Securities, said: 'Results will be good despite the mortgage war earlier this year. 'Interest rate cuts have reduced borrowing costs and widened margins.' Analysts said European investors were increasingly looking at banks, particularly HSBC Holdings, the parent of Hongkong Bank. HSBC Holdings and Hang Seng Bank both closed higher yesterday. Among high-price Hang Seng Index counters, it was the property stocks that lagged. Brokers said the property sector would be most directly affected by higher interest rates. Henderson Land and Shun Tak Holdings both closed lower, while Cheung Kong ended flat. In a repeat of Monday's trade, mid-and small-cap shares outperformed blue chips, with the Hang Seng MidCap-50 Index up by more than 1 per cent. Garment-maker Goldlion Holdings added 10 cents to $7.20 after it announced that its annual profits rose 41 per cent, well above expectations. H shares and other China-related stocks also surged. CNPC Hong Kong, a unit of China's state-run China National Petroleum Corp, doubled its price to 27.5 cents on news that it would buy a 54 per cent stake in a Chinese oil field from its parent firm. Prior to the release of US inflation figures on Friday, Hong Kong stocks were expected to drift higher. Kent Rossiter, senior sales manager at Nikko Securities, said after Monday's fall, Hong Kong stocks had largely discounted the expected rise in US interest rates. As a result, he expected the index would break the 11,000-point level by the end of the week.