HONG Kong's Hang Seng Index closed above 27,000 for the first time, on speculation Chinese mainland funds will flow into local equities, Bloomberg News reported yesterday.

China Mobile Ltd led gains. China Netcom Group Corp (Hong Kong) Ltd jumped the most in six months on expectation it will benefit from a reorganization of the phone industry.

The index has jumped 25 percent since August 20 when China announced plans to allow nationals to buy Hong Kong stocks. An announcement last week that China Southern Fund Management Co, the nation's largest asset manager, and its partner were approved to invest US$4 billion overseas under China's qualified domestic institutional investor, or QDII program, added impetus.

The main reason for the rally "is expectations of inflow from the mainland," said Winson Fong, who helps oversee about US$2.5 billion of Asia, excluding Japan, assets at SG Asset Management in Hong Kong. "There are more positive factors than negative so eventually the market will still have to go up."

The Hang Seng added 634.86, or 2.4 percent, to close at 27,065.15. Share transactions totaled HK$147 billion (US$19 billion) yesterday, an all-time-high.

The Hang Seng China Enterprises Index, which tracks the so-called H shares of 43 mainland companies, rose 2.4 percent to a record 16,644.49. Hong Kong markets were shut on Wednesday for a holiday.

Hong Kong Exchanges & Clearing Ltd climbed on a report that China's government may have bought a stake in the company.

Sun Hung Kai Properties Ltd led developers higher on increased speculation the US Federal Reserve will lower interest rates after durable goods orders fell more than forecast. Hong Kong's borrowing costs typically move in step with the US as the city's currency is linked to the dollar.

HSBC Holdings Plc led gains among companies doing business in the US after a report said Warren Buffett will buy a stake in Bear Stearns Cos.

China Mobile, the world's largest mobile-phone network operator by users, climbed HK$7.90, or 6.5 percent, to HK$129.

China Life Insurance Co, the nation's biggest insurer, rose HK$1.55, or 3.7 percent, to HK$43.20. Both stocks closed at record highs.