Hong Kong stocks rose more than one percent on Tuesday following strong results from HSBC although weak China plays and fund flow worries took the shine off the wider index.
HSBC Holdings Plc, which accounts for one third of the Hang Seng Index weighting, gained 2.61 percent to HK $118 after posting forecast beating first half results late on Monday.
The bank, the world's third largest bank by market value, also said it will sign a deal later this week to buy a stake in China's fifth largest lender, Bank of Communications.
Several investment banks raised their ratings on HSBC and traders are raising their target price on the stock. "A lot of institutions are buying HSBC and the shares should rise to HK $130," said Francis Lun, general manager at Fulbright Securities. The blue chip Hang Seng Index ended up 1.28 percent, or 155.73 points, at 12,357.12.
Volume was above recent averages, with HK $14.25 billion (US $1.8 billion) changing hands.
However, weak overseas markets - hurt by a further rise in oil prices - capped gains along with fund flow worries.
Hong Kong investors have watched foreign funds leave Hong Kong since a spike late last year when a flood of money entered thanks to a weak US dollar and a slew of China IPOs.
HSBC's local affiliate Hang Seng Bank surged 2.53 percent to HK $101.50 after it reported a better than expected 24 percent rise in first half profits as it cut reserves for bad debts. But other banking stocks fared badly.
Bank of East Asia Ltd, the city's fifth-largest lender, tumbled 3.03 percent to HK $20.80 after reporting weaker than expected first half earnings on Friday. The shares have been the worst performing stock in the Hang Seng over the past five days, falling over six percent.
BOC Hong Kong (Holdings) Ltd, the Hong Kong arm of the Bank of China, ended flat at HK $13.30 after it said late on Monday it had suspended two of its senior executives for alleged unauthorised distribution of assets and that the company was assisting in an investigation by HK authorities.
Henderson Land Development Co Ltd, which owns the new high rise development called Grande Promenade, was a top performing property blue chip, up 1.48 percent to HK $34.30.
China enterprise shares, better known as H-shares, fell nearly one and a half percent to 4,241.60 with major raw material stocks leading the losers.
Aluminium Corp of China Ltd (Chalco), fell 7.5 percent to HK $3.70 after the firm said it had cut alumina spot sales price by 12.8 percent to 3,750 yuan (US $453) per tonne. China carmaker Brilliance China Automotive Holdings Ltd, the Chinese partner of BMW AG, slipped 5.03 percent to HK $1.70 despite posting an announcement that its four executive directors had not resigned, in a denial of Chinese newspaper reports on Monday.