(Reuters) - Hong Kong stocks ended the last full trading week of the year on a positive note as signs of a strengthening U.S. economy encouraged some investors to buy, although overall volume remained very light.

The Hang Seng Index rose 1.3 percent on Friday and 1.9 percent this week. The China Enterprises Index of top locally listed mainland firms rose 1.9 percent on the day, outperforming the broader market.

The Shanghai Composite Index ended up 0.9 percent, closing above a technically crucial 2,200 level as it recovered from Thursday's dip to a 33-month intraday low.

But the index, which has now broken above the 76.4 retracement from its 2005 low to its 2007 peak, still posted its seventh successive weekly drop as tight money market conditions due to year-end funding requirements kept the domestic share market in China under pressure.

In Hong Kong, investors followed gains on Wall Street where stocks jumped on Thursday, leaving the S&P 500 virtually flat for the year after data showed new claims for unemployment benefits dropped to a 3-1/2-year low.

A December improvement in U.S. consumer sentiment to the highest level in six months also helped, with Americans feeling more positive about the economy's prospects.

The 'Fear Factor' is becoming less of an issue with better U.S. numbers, said a portfolio trader at a European bank in Hong Kong, adding that he expected window-dressing and risk-on to be the theme through to year-end.

The Hang Seng may still be an underperformer this year relative to Asian and global markets, as fears of a euro zone crisis and fading appetites for Chinese equities among global investors took their toll.

The Hang Seng Index is still down nearly 20 percent this year compared with an 8 percent decline for the MSCI World index .

On Friday, index heavyweight HSBC Holdings Plc, Europe's largest lender, rose 1.4 percent to HK$59.80 following gains in European financial stocks, providing the biggest boost to the Hong Kong benchmark.

The bounce in Shanghai helped Hong Kong-listed mainland companies outperform the broader market. Oil major CNOOC Ltd rose 2.9 percent, while China Life was up 3.5 percent.

Among the large-cap H-shares, Yanzhou Coal was the most actively traded counter after it said it planned to merge its Australian unit with Gloucester Coal in a A$700 million deal that will create one of Australia's largest listed coal companies.

With worries over China pushing valuations on an earnings-multiple basis for the domestic market to levels to historic lows, some market-watchers say a rebound is likely once money market conditions ease.

Analysts at UBS tracking China's domestic market said in a note to clients they were turning cautiously optimistic on over the three- to six-month horizon.

Overall capital market liquidity is expected to remain tight in the near term on year-end funding requirements and demand for cash around the Lunar New Year, but monetary policy fine-tuning should provide support thereafter, said strategist Li Chen in a note to clients.