Salomon Brothers institutional sales executive Julian Lees said the market had been oversold this week, and investors had started to move back into blue chips.

HSBC Holdings' share price climbed $3 or 3.27 per cent to $83.50 after it had weakened following the release of disappointing results by 61 per cent owned Hang Seng Bank last Thursday. Hang Seng was up $1.50 to $55.50.

Trade in the two banks contributed 60 points to the index. They were the most actively traded counters, with turnover of $254.8 million and $204.9 million, respectively.

Hongkong Telecom also played a large role in the rally, rising 40 cents to $12.20.

Sun Hung Kai Securities research director Percy Au Young said the large gains posted by Jardine group stocks caused market speculation that a financing agreement for Chek Lap Kok airport might be in the works.

Jardine Matheson rose $3 to $60.50, while Jardine Strategic rose 80 cents to $26.30.

Nomura Research director Clive Weedon said he was surprised by the market's performance because of the uncertainties overhanging it, particularly the growing doubts about renewal of China's Most Favoured Nation trade status by the US next June.

''The differences [between the US and China] are obviously getting worse . . . but it seems to me the market is ignoring what could be a very serious problem,'' he said.

August index futures reflected the cautious attitude taken by some investors. They closed up 130 points at 7,410, a 39-point discount to the cash market.

Swire Pacific, which dropped $1.25 on Wednesday after 51.8 per cent owned Cathay Pacific reported lower-than-expected results, rebounded with a $1 rise to $38.

After the market closed, Swire reported an interim profit decline of 17.4 per cent to $1.8 billion. Cathay shares rose 20 cents to $10.20.

The only index stocks not to rise were CITIC Pacific and HAECO, which were unchanged.