Hong Kong shares rose yesterday on rumours that China Telecom would enter a benchmark index series for fund managers and Hutchison's strength on the back of its stake in takeover target Mannesmann. The Hang Seng Index rose 108.17 points, or 0.7 per cent, to close at 15,393.2. Turnover was $13.16 billion. Rumours spread late yesterday that China Telecom would be placed into the Morgan Stanley Capital International (MSCI) indices for Hong Kong or the mainland. The stock gained 6.63 per cent to close at $40.20 as investors bought the counter in anticipation of strong buying from funds that track the MSCI series. News the stock was not entering the indices came after trading closed yesterday. 'The MSCI rumours have been driving the stock up,' Tung Tai Securities research manager Kenny Tang Sing-hing said. Hutchison recovered in late trade to end 2.63 per cent higher at $97.25 as investors bought into the stock after it fell 3.06 per cent on Monday. Investors still place high value on the stock because of its 10.2 per cent stake in the German cellular telephone operator Mannesmann, a takeover target of British-based Vodafone AirTouch. South China Brokerage vice-chairman Howard Gorges said: 'There is a feeling that the Mannesmann bid may increase.' Brokers said the market was largely driven by positive news on Hutchison and China Telecom, with investors starting to take profits on other counters. Prudential Brokerage managing director Lau Shing-ngon said: 'There has been some profit-taking as the market has been around a two-year high for the past two days.' Guangdong Investment dropped 6.48 per cent to $1.01 while Sun Hung Kai Properties fell 1.72 per cent to $68.50. The market was volatile in the morning session, with the index rallying to a high of 15,521.47 before profit-taking set in to push the market down to 15,024.83. Large brokerages such as Jardine Fleming and Merrill Lynch were seen shorting index futures in morning trade, which helped drive the equity market down. Mr Tang said: 'There may be profit-taking as we near the expiry of the November futures contract next week.' Positive sentiment towards telecommunications stocks also spread to smaller counters such as City Telecom, which soared 27.82 per cent to $7.35. Mainland shares have failed to keep pace with the 11-day blue-chip rally. The H-share index fell 2.2 per cent to 502.87 points. Investors have been selling out of select counters in the wake of the agreement between Beijing and Washington on the mainland's entry into the World Trade Organisation. The index has fallen more than 10 per cent in five trading days, hit by chemical counters which are expected to face competition when the mainland enters the WTO. Mr Lau said: 'The problem [for H shares] is competition from foreign companies as some of them are not making money, and in the future they will lose more money from the competition.' Some brokers said the market would undergo a correction when China Telecom and Hutchison stopped rising. 'When these two stocks cool down we will see a real adjustment,' Mr Lau said. 'The Hang Seng Index may come down below the 15,000 level.'