STOCKS continued to gain ground yesterday as the rally went into its second week. The Hang Seng Index put on 1.3 per cent to close 118.69 points higher at 9,253.41. Volume was reasonable, with $4.04 billion worth of shares traded. Trading was led by futures as Hong Kong brokerages bought the index aggressively. Nomura was a heavy buyer of the cash market but most of its deals were done for its own book and was not institutional money from Japan. Overall, institutions were net sellers, using the rally as an opportunity to lock in gains. Hedge funds were again quite active, although not as much as last week. The rally in stock prices smacked of short-covering, said one American broker. Brokerages are finding more sympathetic ears for their good news stories, and everything from the renewal of China's Most Favoured Nation (MFN) status to an imminent solving of the airport dispute was being bandied by traders as reasons for clients to buy. The lack of broad involvement from American, European and even Japanese funds could be a sign that stocks have rallied too far. Many traders yesterday expressed concern that the rally, by 1,000 points in less than two weeks, had been overdone. ''We need something real, not just thin air to keep us going,'' said one British broker. Trading also saw selective buying, with the property sub-index rising by 2.7 per cent while utilities edged up 0.61 per cent. SHK Securities executive director Larry Tam was more optimistic, saying MFN renewal was likely and that the market was fundamentally sound. However, he said there would be continued resistance to the market moving higher, predicting it would not go to 10,000 in the short term. An increase in United States interest rates, if it comes, is not expected until after the market closes today, so there may still be room for a further rally. In the past, however, the market has usually been sold off ahead of a decision on interest rates. Most are now expecting a rise of 0.25 per cent and not 0.5 per cent because US consumer price index (CPI) figures released last week indicated a reduced risk of inflation. If rates are increased, bank stocks could be among the worst performers in the index. CS First Boston strategist Paul Schulte said that while the Hang Seng Index and the US Treasury 30-year bond tracked each other with a 72 per cent correlation, the finance sub-index tracked the bond yield with an 80 per cent correlation. Trading moved in a 169-point range from 9,107.87 to 9,276.62. The market hit the bottom at the opening and moved up for most of the first session. The 9,200-mark proved a resistance level but the market was able to overcome the barrier to reach a morning high just below 9,250 before closing the session 41.47 points higher at 9,176.19. Trading in the afternoon saw the index dip at the opening before rallying to finish the day just off the high mark. Cheung Kong again led the rally, putting on $1.50 to close at $39.25. It was also the heaviest contributor to the index gain, accounting for 18.67 points. Sun Hung Kai Properties was also ahead, putting on $1 to close at $50. Conglomerate Wharf Holdings saw some of the property magic rub off on it, jumping 50 cents to close at $30.25. Hongkong Telecom, one of the worst performing blue chips, was indicative of the lack of buying in utility counters. It remained unchanged at $15.