Hong Kong shares reached a six-year high on heavy turnover, as funds flooded the market after the US Federal Reserve kept its interest rate unchanged and the IPO frenzy boosting investors' purchasing desire.

Fund inflow from politically-troubled Taiwan and Thailand also helped boost market sentiment.

The benchmark Hang Seng index (HSI) advanced 0.61 per cent, or 107.01 points, yesterday to 17,619.97, after peaking at 17,663.44 a level last seen in September 2000.

The day's turnover was a brisk HK$37.1 billion ($4.8 billion), up from HK$33.3 billion on Wednesday.

Telecom and banking stocks hogged the limelight.

"China Mobile was the main company to boost HSI to a new high on Thursday," said Marco Mak, Head of Research of Tai Fook Securities.

As the world's largest mobile service operator by subscribers and market value, China Mobile saw its shares reach a fresh six-year high of HK$55.9 yesterday, adding to Wednesday's gains after the company reported an addition of 4.42 million subscribers in August.

The stock closed up 2.59 per cent at HK$55.5 yesterday.

"Growth of the China enterprise index largely driven by strong performance of Chinese banks also drove HSI to jump," Mak said.

Investors yesterday snapped up issues of mainland banks such as China Construction Bank, Bank of Communications and Bank of China amid optimism ahead of China Merchants Bank's trading debut.

China Merchants Bank is expected to make an explosive start today after drawing massive demand from investors looking to gain exposure to the mainland's 10 per cent annual economic growth and further appreciation of the yuan.

"That has got investors excited about the sector," said Alfred Chan, chief dealer at Cheer Pearl Investment, who is expecting the stock to rise as much as 17 per cent.

"It's partly the appreciation of the yuan which is helping China stocks. Besides, the sentiment in the market is pretty good," said Howard Gorges, director at South China Brokerage.

Bank of Communications added 3.85 per cent to HK$5.39 yesterday, after reaching a record high of HK$5.41. China Construction Bank rose 2.43 per cent to HK$3.37 and Bank of China advanced 1.19 per cent to HK$3.39.

Gains in the banks helped drive the China enterprise index up 63 points to a four-month high or 7107.

"The US Federal Reserve's decision to keep its funds rate unchanged at 5.25 per cent for a second straight time gave the market a positive look," said Andes Cheng, Associate Director with South China Research.

Due to the HK currency's greenback peg, Hong Kong's monetary policy is tied to the United States.

"The global decline in oil price also helped HSI leap yesterday," Cheng said.

Oil prices dropped to a fresh six-month low to below US$60 a barrel in US trade on Wednesday as supply worries continued to be soothed by swelling US fuel stocks. US crude rebounded to US$61.16 in late Asian trade.

Thanks to the lower oil price, transport shares such as China Eastern and Cathay Pacific rose more than 1 per cent yesterday to HK$1.34 and HK$16.14 respectively.

"Political turmoil in Taiwan and Thailand also propelled some funds to flow into Hong Kong, which as a result pushed the index up further," Cheng added.

(HK Edition 11/21/2006 page3)