''We witnessed a phenomenal day of trading and if the Sino-British talks turn out to be positive it will not be the last,'' said a senior broker with Baring Securities.

Further assurance of more rises came from the Hang Seng Index Futures market, which saw April close at 6,855 on 9,515 contracts. The May contracts closed at 6,850.

Hongkong stocks traded in London remained firm overnight, with some minor gains being made by key blue chip stocks, including Jardine Matheson Holdings and HSBC Holdings.

News of the resumption of talks was a strong rumour in Hongkong financial circles throughout Tuesday, but the announcement was made in London, Beijing and Hongkong only after the local market closed.

Urgent buying of Hongkong stocks traded in London followed during the night and put the market more than 100 points up when trading opened yesterday.

Within six minutes of the starting bell ringing out across a tense trading floor at 10 am, the Hang Seng Index had risen more than 350 points - adding the equivalent of $80 billion to stock market capitalisation.

At one point the index struck a high of 6,805, before sliding back to trade above 6,720.

Jardine Matheson Holdings was one of the best performing stocks of the day rising $7 to $55. The holding company is the parent company to the Jardine Group of companies, which have come under direct attack from Beijing during the political row.

Yesterday's positive news removed the political uncertainty surrounding the stock and investors piled in, said brokers. HSBC Holdings was also strongly up adding $4 to $73.50.

By Hang Seng index sub-sector trading, conglomerates and industrial stocks rose 6.59 per cent, property stocks were up 6.5 per cent, financial stocks were up 6.15 per cent and utilities were up 3.49 per cent.

Mr Stuart Gregory, an institutional salesman with Morgan Grenfell (Asia) Securities, said the market had waited six months for news of a thaw-out in Sino-British relations.

''As Governor Chris Patten says, common sense has taken hold because it's a no-win situation for both sides if they don't compromise,'' he said.

Yesterday's rise means the local stock market is undoubtedly one of the best in the world this year, climbing 23 per cent so far.

The Hang Seng Index has jumped 58 per cent since the beginning of last year and is 124 per cent higher than the same time in 1991.

A broker with Credit Lyonnais Securities said: ''We were kept on our toes for two years.

''Yesterday there was no major sell-off in profit-taking as investors seem to be confident that the index will continue to move ahead.'' Many dealers are now confident the index will roar through the 7,000 barrier by the end of June as the market demands a re-rating even before China and Britain resume talks in Beijing next Thursday.

Mr Alex Tang, of Dao Heng Securities, said the record performance had been strongly supported by a new wave of investors from the United States and Europe who were just moving into the market.

They more than made up for those who had moved on to other Asian markets, he said.

He said investors were confident that other major projects in Hongkong, such as Container Terminal 9 and the Chek Lap Kok airport, would go ahead and have a spill-over effect on all economic activity in the territory.

Despite the sharp index jump, Mr Tang expected the market to move even higher, with the 7,000 barrier easily broached.

''We're only talking about three per cent growth from the present level and if everything goes right, I think we'll get there.'' Mr Gregory said China had been forced to move by financial realities as it attempted to raise funds internationally to support an aggressive infrastructure development programme.

If talks between China and Britain go well, he said, China's ability to tap capital would be enhanced.

K.S. Ng, director with Barclays de Zoete Wedd (Asia), said while nobody expects discussions between Britain and China to produce instant results, investors are happy both sides have decided Hongkong's economic growth is more important than politics.

But not everyone was caught up in the market euphoria.

Mr Michael Ng Wai-ming, assistant director with Sassoon Securities, said investors got carried away by the positive news.

''It's too much, too fast,'' he said.

''It's just the resumption of talks but there have not been any compromises to end the row between China and Britain. I think we'll see 7,000 in the medium term but it won't happen tomorrow.''