HEAVY buying of shares in HSBC holdings yesterday took the Hang Seng Index to its third highest close ever. The index surged 306.44 points, 2.59 per cent, to close at 12,157.57, on a volume of 1.69 billion shares and a turnover of $10.47 billion. HSBC was again the star performer of the day, jumping $7 or 5.65 per cent to close at a record $131. Turnover was $1.48 billion, with 11.48 million shares traded. The rise in HSBC accounted for 100.5 points of the index gain. The day's trading was characterised by tight share supply, with sellers scarce and demand strong for finance and property blue chips. ''There was broad-based investment demand focusing on the financial sector, particularly on HSBC,'' said Peregrine sales director Chris Malpass. Salomon Brothers vice-president David Williamson said the covered warrant issued by Robert Fleming on HSBC had created a lot of interest in the stock. Recent strong results by subsidiaries continued to increase expectations for HSBC's interim profits. But Mr Williamson said he would not be surprised to see HSBC ease on profit-taking after the actual announcement. Barclays de Zoete Wedd assistant director Nial Gooding said the market was notable for a ''complete absence of sellers''. Many investors had been buying ahead of the Lunar New Year while sellers were holding back. He also said the high number of covered warrant issues over the past two weeks had tightened share supply. The market had been helped by local investors who had ''got a sniff of covered warrants'' and traded with the trend. ''They are all piling in like lemmings in the run-up to Chinese New Year,'' said a broker. Mr Williamson said: ''We have also started to see Japanese institutions like life funds investing outside of Japan contributing to the market rise. ''Market sentiment is positive, with many overweight in property stocks.'' Mr Gooding said he believed the market would take a breather next week. The market was fairly steady until 11.30 am, when strong institutional demand for HSBC and rumours that Hongkong Land had sold its Swire House property pushed the index up to close the morning 251 points higher at 12,102.08. Jardine Fleming Futures head of derivatives research Virginia Mumford said big buy orders and a lack of liquidity had boosted the market. ''Would-be sellers stood back and watched the price rise. If someone had a sell order they would wait for the market to move before unloading,'' she said. The trend continued in the afternoon, the index peaking at 12,186.8 at about 3.15 pm. Late profit-taking by foreign institutional investors and some arbitrage activity late saw the market decline slightly to close at 12,157.57 points. An index estimate indicated that further profit-taking in London had knocked 81 points off the local close by about 10 pm Hong Kong time, taking the index back to 12,077. In local trading, the finance sector was the day's best performer, gaining 3.92 per cent. This was largely attributable to the gains by HSBC, although increases in Bank of East Asia and Hang Seng Bank also lifted the index. The property sector was another big winner, gaining 2.08 per cent. Analysts said demand for property companies was likely to stay strong. February futures rose 210 points to 12,180, a 22-point premium to the spot market. However, for most of the day the futures market was trading at around a 170-point premium to the cash market. It was only at the end of the day that futures dropped as arbitragers moved in. Hongkong Land finished at $31, up from $29.30, on rumours that it had sold its Swire House property for $5 billion to mainland interests.