The Hang Seng Index recouped 500 of the points lost in its slide since the start of the year yesterday amid a general rally among battered regional stocks.
The Hang Seng's 5.62 per cent increase to 9,400 points was sparked by lower interest rates and a belief that the worst might be over.
The region rallied on hopes that Japan might be about to announce measures to boost its economy, analysts said. Intervention last week by the US and the International Monetary Fund to halt economic chaos in Indonesia also aided sentiment.
Wong Yee-hui, senior research manager at Merrill Lynch, said: 'There's a feeling currencies are close to bottom so there's more confidence.' Solid gains by the yen against the US dollar indicated expectations of firm measures to stimulate the Japanese economy. Tokyo shares firmed 1.34 per cent to 16,262.04.
The strength in Japan filtered to Taiwan, helping its currency to firm to NT$33.58 from NT$33.81. But profit-taking dragged stocks down by 0.61 per cent to 7,847 points.
Elsewhere, the Indonesian rupiah weakened, again threatening the 10,000 level to the US dollar. But stocks soared six per cent on a merger of five Indonesian banks.
