A DAY of extremely volatile trading saw the Hang Seng Index fluctuate wildly before finishing slightly up on Monday's close. Major blue chips were heavily sold by overseas institutions only to be snapped up by bargain-hunters. Many institutions reduced positions in the lead-up to Friday's bank meeting to decide Hong Kong interest rates. ''Certain investors do not want to be surprised in case the banks increase the rates by more than 25 basis points,'' said Salomon Brothers vice-president David Williamson. Brokers said the market seemed to have come out of its free-fall and had established a strong short-term floor at the 10,800-mark. The Hang Seng Index ended 23.52 points or 0.21 per cent higher to close at 11,012.33. Turnover was a very light $5.76 billion, the lowest since December 2, reflecting a lack of liquidity in the market as major buyers stayed back waiting for Friday's anticipated rate increase. Share volume was 933.86 million, with a low 39,787 deals made. Despite the higher index close, analysts said the volatility showed the market has not yet found a new direction. Much of the trading was arbitrage-related as the futures market led the cash market all day. The market continued to be dominated by heavy selling from overseas institutions with mainly local buying stemming the flow. Barclays de Zoete Wedd assistant director Nial Gooding said the presumption by local investors that foreigners would be tempted into the market at lower levels might not be correct if asset allocators de-emphasise Asia. ''If you put local liquidity against global liquidity the locals will lose,'' he said. Local brokerages are more optimistic, with one broker describing the drop over the last few days as too severe, adding that the market should experience some sort of a rebound over the next few days. Trading opened around the 10,930 mark yesterday and quickly dropped to about 10,800 as market-makers made adjustments to bring the market into line with London's overnight close. It found support around 10.30 and just as quickly rebounded to the 10,930-mark where it hovered for the rest of the morning session until closing at 10,923.63. The afternoon saw a repeat of the morning's trend, with more sell orders from foreign investors pushing the market back down to the 10,800-level. Just before closing the market regained all of the day's losses, and more, to close ahead. The futures market also had a wild day trading in a 300-point range before closing at 11,020, an eight-point premium to the cash market. HSBC was again the big mover, accounting for more than half the gain. The stock had a volatile day, trading from a low of $114 to a high of $118 before closing unchanged at $117. Share volume was 6.91 million on a light turnover of $800.76 million. One broker said there was a lot of interest in the stock and at one stage there were more than 230 bidders and just six sellers . The stock also came under selling pressure as arbitrageurs took advantage of the different pricing between HSBC stock in Hong Kong and sterling-denominated stock in the UK. Cheung Kong was the second most actively traded stock, closing at $45.50, up 50 cents from $45, on turnover of $282.13 million. Hong Kong Telecom had a big day, edging up 10 cents to $15 on a high volume of 11.67 million shares traded and turnover of $172.16 million. Hang Seng Bank was the biggest blue-chip loser, closing off $1 to $73 on turnover of $263.14 million. Wheelock also bucked the trend, dropping from $20.20 to $19.80 on turnover of $64.56 million.