THE stock market has entered a critical stage as the Hang Seng Index went on to new highs last week, driven by an influx of foreign capital and bolstered by sentiment. The index reached a new high at 7,744.32 on Monday on the decision of Morgan Stanley's investment strategist Barton Biggs to boost Hong Kong's weighting. The buying spree continued until profit-taking by local investors wiped 61.23 points off the index to settle at 8,005.56 on Friday. Despite that, the renewed enthusiasm was sparked by institutional buying and PBI Securities believed it was only the start of the upward trend. There should be good support for the index at the levels because the fourth quarter is when fund managers look to position themselves for the rest of the year. PBI said the latest rally underlined the strong overseas interest in the local market that would push the market up further in the short term. Brokers noted Hong Kong still attracted investors, despite its political uncertainty. Foreign market players seem to have ignored the forthcoming Legislative Council debate on the proposed political blueprint. Even so political issues are expected to hit the limelight in the weeks after Governor Chris Patten's policy speech last week. His stance that he will table his electoral reform package if an agreement cannot be reached with China within a ''few weeks'' will serve to snap investors' attention back to the political front. Last week, overseas orders for utilities pushed the index further up. China Light and Power and Hong Kong Telecom posted commendable rises of five per cent and 7.8 per cent respectively. The performance of other sectors was highlighted when usually lagging names, such as the Bank of East Asia and Great Eagle, achieved significant leaps in prices. HSBC gained $1 to $84.50 while Swire Pacific rose $1.25 to $44.25. TVB, under buying from US funds, rose $2.60 to $29.20. Hopewell remained active after reporting a 25 per cent profit growth for the 1993 fiscal year. It is expected that the group will continue to sell down its properties in Hong Kong to support its increasing investment on the mainland.