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SCMP Reporter

HONG KONG stocks rallied for the second day in a row yesterday as Japanese buying and arbitrage activity boosted trading.

  Investors shrugged off fears of an interest rate rise in the United States and concerns over China's most favoured nation (MFN) trading status and went on a marathon stock-buying spree.

  The Hang Seng Index surged 4.29 per cent to close 366.07 points up at 8,906.16.

  Property stocks performed best with Cheung Kong gaining $2.25 to $37.25 and Sun Hung Kai Properties up $2.50 to $47.

  Swire Pacific A was also a strong performer, closing up 6.5 per cent, or $3.50, at $57.

  Brokers said there was some Japanese institutional buying, but the bulk of orders came from the US.

  Market watchers said much of the trading was speculative, with investors who had taken short positions trying to cover themselves by buying stocks.

  ''We are in a great bear rally - but fundamentally things haven't changed,'' said one US broker.

  Analysts said the market still had to clear the MFN hurdle and interest rate increases before it could gain momentum and stage a serious rally.

    Barclays de Zoete Wedd assistant director Nial Gooding said the rally was opportunistic rather than investment-led.

  Brokers said there was more room for stocks to rally, and said the Japanese could still be buyers.

  However, there are already signs that the rally is losing steam and it may be difficult for it to breach the 9,000 barrier.

   Regional markets gained along with Hong Kong and on the back of surging US stock and bond markets.

  Japanese stocks rallied as investors looked towards a weakening yen.

  A weaker yen would help fuel an export-led recovery and see earnings pick up.

  High technology export-oriented stocks were the best performers in trading yesterday as the Nikkei closed up 1.17 per cent at 20,150.13 points.

  In Singapore, the Straits Times Industrial index rose 26.52 points, or 1.19 per cent, to 2,261.22.

  Thai stocks also gained, with the Stock Exchange of Thailand composite index up 7.76 points to 1,235.76.

  Taiwan stocks rallied yesterday with electronics stocks leading the way to a three-month high as the weighted-price-index of the Taiwan Stock Exchange gained 87.10 points, or 1.47 per cent, to 6,024.47.

  Australian stocks also performed well, with the All Ordinaries index gaining 1.3 per cent to close up 26.4 points at 2,034.6.

      Brokers in Australia cited strengthening metal prices, which boosted mining company stocks, and a positive reaction to the Federal budget.



HK stocks rally for second day in a row