Hong Kong stocks rallied 1.1 per cent yesterday to a record closing after the US Federal Reserve left the interest rate unchanged.

Oil stocks chased higher crude prices and China Mobile set a six-year peak for the third straight day.

Hong Kong Exchanges and Clearing extended its recent gains before Industrial & Commercial Bank of China's keenly awaited Friday debut, in what should be a day of near record turnover. As the mainland's top lender, ICBC has raised US$19 billion in the world's largest IPO.

Investors also welcomed the US central bank's prediction of a moderate economic growth amid easing price pressures after it decided not to change its Fed fund rate.

Major Hong Kong banks followed the Fed's move to leave their rates unchanged.

The benchmark Hang Seng index (HSI) rose above 18,300 for the first time in six and half years to beat the March 28, 2000, closing high of 18,301.69. The index gained 195.80 points yesterday to end at 18,353.74.

Some market participants said the expiry of the index futures helped fuel buying momentum, with many predicting a new HSI peak next week, if not before.

"There is a possibility that at the end of this year, the HSI will rise above 18,397.57, its highest point sealed in March 2000," Taifook Securities research analyst Norman Zhang said.

"Though ICBC's IPO has drawn a certain amount of capital from the local market, which in turn has created some pressure on its overall performance, we do not think that the pressure is big enough to constrain the upswing of the index."

Philip Securities analyst Charis Wong said: "The momentum for the HSI to go up will remain till the end of this year." Wong attributed the positive market performance to the robust mainland economy and its Hong Kong-listed companies.

The resource-heavy China Enterprises index of mainland H-shares ended at a nine-year high for a second straight day after gaining 0.5 per cent to reach 7,556.22.

China Mobile, the biggest gainer among the blue chips, rose 3.8 per cent to close at HK$62.6.

"It's simply people buying for 2007," Apex Capital Management portfolio manager Tat Auyeung said.

"The Fed is pretty confident about the outlook. It's the Goldilocks scenario we've been looking for: not too hot, not too cold. It's giving people more thought about 2007. People aren't buying China Mobile for 2006; they're buying China Mobile for 2007 and beyond."

Bourse operator Hong Kong Exchanges surged 3.4 per cent to reach HK$64.75 in heavy trade, with Friday's turnover set to approach the record set on August 28, 1998, when the volume reached HK$79.0 billion (US$10.1 billion).

Oil shares shot up, too, after a 4 per cent jump in crude prices, sparked by a sharp drop in US inventory last week and as OPEC enforced output cuts.

Oil producer CNOOC raced up 1.7 per cent to reach HK$6.57 and rival PetroChina rose 1.2 per cent to HK$8.7. Oil explorer CNPC jumped 3.1 per cent to HK$3.98.

Shares in global retailer Esprit set a new peak before settling down for a 3.3 per cent rise to HK$74.6.

Citigroup raised the company's target price to HK$81.5 from HK$73.1. The bank said it was adjusting the stock's valuation by pegging its target price-to-earnings multiple in line with that of its peer group.

Casino operator Melco International Development soared 7.3 per cent to reach HK$19.18 after saying yesterday that the Hong Kong stock exchange had approved its proposal for a separate listing of a gaming joint venture after rejecting its earlier plea.

The day's turnover was HK$33.9 billion (US$4.3 billion) compared to Wednesday's HK$31.6 billion.