STOCKS closed sharply higher yesterday with players buying back their short positions ahead of the United States' Federal Reserve meeting. The Hang Seng Index stood at 9,565.66 points, up 186.74 points, or almost two per cent, the largest one-day gain this month. Bargain hunting resulted in heavy trading with a turnover of $3.9 billion, against $1.75 billion previously. However, the volume showed that some investors still remained sidelined ahead of an expected interest rate rise in the United States overnight, said Ben Kwong, research director at Dharmala Securities. 'If the US bond and stock markets react positively towards the interest rate rise news, the Hong Kong stock market will also have a positive response,' Mr Kwong said. A decision to increase interest rates was not expected to cause heavy selling pressure, because investors were well prepared for the outcome. However, an improvement in investor sentiment was expected today, brokers said. The index is forecast to stay in the 9,500 to 9,700 range this week. The market had expected the FOMC meeting would increase the interest rate by 0.5 percentage point. According to Seapower Securities' weekly report, there may be a minor dip after the interest rate rise. 'People are looking forward to seeing a Christmas rally, but it seems premature for funds to return to the market,' it said. 'Hong Kong is not the only victim because the other markets - like Singapore and Malaysia - are also experiencing poor liquidity.' The interest rate rise should also slow the US economy and relieve inflationary pressure. However, given the stable growth of the US economy and greater inflationary pressure, a 0.5 percentage point rise might trigger another rise before the end of this year, brokers said. The recent release of US economic statistics was also affecting market sentiment, prompting investors to adopt a more cautious attitude. Buoyed by the Wall Street rebound and a stronger US dollar, investors from Japan and the US also bought to replenish their stocks, brokers said. Fund managers, who had stayed on the sidelines in anticipation of an interest rate rise, traded more actively again, brokers said. Blue chips still dominated trading, accounting for 64.91 per cent of trading volume. Of the 33 blue chips, 30 were higher, two lower and one unchanged. Recently, weak banking and property stocks were attracting the interest of investors. These two blue-chip categories were expected to be the first to rally after the rise. HSBC Holdings, the biggest blue chip in terms of market capitalisation, topped the performers' list. The counter notched up 1.95 per cent to close $1.75 higher at $91.25. It was also the day's heaviest traded stock with a turnover of $302.35 million. Its counterpart Hang Seng Bank edged up 2.57 per cent to close $1.5 higher at $59.75 on a turnover of $224.57 million. Cheung Kong (Holdings) continued to be the best performing property counter, gaining 80 cents to finish at $37.80 on a turnover of $258.56 million. Sun Hung Kai Properties, which was among the heaviest traded stock, leapt $1 to $58.25 on a turnover of $157.93 million. Hongkong Land put on 30 cents to finish at $19.85 on a turnover of $127.12 million. The properties sub-index was also strong, surging 380.15 points to close at 17,223.32 points.