HK stocks up over 3 percent after US rally

The blue-chip Hang Seng Index rose 520.72 points, or 3.19 percent, to 16,832.88. The index gained more than 10 percent in Monday's session.

Tuesday's advance came after the Dow Jones industrial average gained more than 11 percent--its biggest one-day gain since 1933--as traders reacted with relief to efforts by the U.S. and Europe to flush capital into banks and get lending flowing again.

But analysts said markets in Hong Kong and elsewhere could see more downside in the months ahead should the global economy fall into recession.

"I'm optimistic we've seen a turning point in the market meltdown, that we've been saved from a complete collapse, but we're still very stressed," said Dariusz Kowalczyk, chief investment strategist for CFC Seymour. "This may be a bear market rally and a good opportunity to sell."

Meanwhile, Hong Kong authorities announced extra measures to further support the banking system in line with global efforts.

The territory's de fact central bank, the Hong Kong Monetary Authority, said it would use exchange fund reserves to guarantee the repayment of all bank deposits until 2010, regardless of the amount. The government also established a fund to make more capital available to local banks, though authorities said they didn't believe many institutions would need to tap it.

"Our banking system is healthy and robust," Financial Secretary John Tsang told reporters after the market closed.

Developers helped power the market higher.

Sun Hung Kai Properties Ltd., Hong Kong's biggest developer by market value, surged almost 11.5 percent to HK$74. Cheung Kong (Holdings) Ltd., Hong Kong's No. 2 developer by market value, was up 5.3 percent to HK$81.5.