AFTER two days of red ink and downbeat investor sentiment, the local bourse swung back into positive territory yesterday following gains on other Asian stock markets.

Stocks enjoyed a rally following encouraging auto data out of the United Sates and an upward revision of China's growth forecast by the World Bank. These two items of news stoked investor hopes of a sustainable economic recovery.

Investment guru Warren Buffett's much-publicised purchase of US railroad Burlington Northern Santa Fe Corp was taken as a signal of confidence returning to the transportation sector and an uptick in US consumer demand.

The day saw Hong Kong's Hang Seng Index gaining 1.76 per cent, Taiwan's Taiex index rising 1.97 per cent, and South Korea's Kospi ahead by 1.94 per cent.

The benchmark Straits Times Index jumped 27.09 points on the previous day, or 1.03 per cent, to 2,648.64, and recouped the losses of the previous two days.

Despite this rosier outlook, the overall investor mood remained cautious, with many preferring to keep their powder dry ahead of the US Federal Reserve's assessment of the economy last night.

Trading volume fell to its lowest level since July, with just 1.13 billion shares worth $998.9 million changing hands.

OCBC Bank was among the chief gainers, adding 13 cents to $7.72. It is planning to raise at least US$500 million (S$700 million) of subordinated debt, according to news reports.

DMG Research analyst Leng Seng Choon said that this was set to give the bank additional scope for asset expansion and was not expected to have a significant short-term impact on its share price.

Also in the banking sector, United Overseas Bank rose 26 cents to $17.68.

Palm oil players gained after crude palm oil prices rose to their highest level in more than a week. But the gains were limited ahead of the companies' earnings results scheduled to be out next week.

Wilmar International gained three cents to $6.15; Golden Agri Resources - the most widely traded with 46.7 million shares changing hands - rose one cent to 43 cents; while Indofood Agri added three cents to $1.68.

Only two of the 30 blue-chip stocks fell. Olam was down two cents at $2.61 and Cosco Corp lost three cents to $1.07 - its lowest close in six months.

Investors dumped the stock after the Chinese shipbuilder reported an 80 per cent slump in net profit and warned that earnings for the year could be substantially lower than last year's.

'We see no near-term catalysts and expect the stock price to continue to underperform sector peers,' said Citigroup analyst Horng Han Low, who has a sell call on the stock.

Earnings are likely to face further pressure due to continued low levels of ship- repair and conversion activity, higher operational costs and a depleting order book, he said.

yanghw@sph.com.sg