SPECULATION ruled yesterday as investors boosted the Hang Seng Index by 88.24 points in an afternoon rally on expectations that Britain and China could be edging closer to an agreement on Hongkong's future. The index closed 106.1 points higher at 7,205.38. Turnover was light at $3.66 billion, with many investors choosing a cautious approach until there was concrete news from Governor Chris Patten's summit meeting yesterday with British Prime Minister John Major, Foreign Secretary Douglas Hurd and other senior government officials. South China Brokerage director Howard Gorges said the market had jumped the gun on hopes that good news would emerge from the talks, which started yesterday in London. ''I feel both sides would like to get this one out of the way and not let it drag on,'' he said. ''I sense Governor Patten is no longer interested in stirring things up and he's no longer hell-bent about getting the most out of China.'' S.G. Warburg's Colin Tse said the market was buoyed by reports that Sino-British discussions about Hongkong would be elevated to the diplomatic level, with a meeting scheduled for this year between Mr Hurd and his Chinese counterpart Qian Qichen. He said there were also reports in the Chinese-language press that the Chinese side had made a proposal during the sixth round of Sino-British talks and that Mr Patten was taking it to Mr Major.