* Hang Seng Index up 0.8 percent, Shanghai edges higher
* Energy counters rise as oil recovers from last week's dip
* HSBC up 2.4 percent, lifts HSI above near-term resistance
* Airlines up in Shanghai on profit forecasts, yuan (Updates to midday)
By Vikram S.Subhedar and Chen Yixin
HONG KONG/SHANGHAI, Jan 12 (Reuters) - Hong Kong stocks extended gains on Wednesday, with a rally in index heavyweight HSBC helping to lift the benchmark past near-term resistance.
The Hang Seng Index was up 0.81 percent at 23,952.34 by the midday trading break, bringing its weekly gain to 4 percent. The index has recovered nearly two-thirds of its losses since early November when it hit a 2-½ year high.
The Hang Seng Index broke through its October 2010 high of 23,852.2 and is hitting against the 61.8 percent retracement level of its decline from Nov. 8 to Dec. 20.
HSBC Holdings Plc, known locally as the "big elephant" because of its mammoth 15 percent weighting on the benchmark index, rose 2.4 percent, providing the biggest boost to the broader market.
"HSBC has been trying to break out above $83 for the past week, and looks like it is finally succeeding. If the decisive break happens, this should push the HSI to close above 23,900," said Daiwa Capital trading strategist Patrick Lee in Hong Kong.
The bank's shares have underperformed the Hang Seng Index for two years in a row, with 2010's near 11 percent decline falling short of the mild 5.3 percent advance for the index.
HSBC trades at 10.3 times its forward 12-month price to earnings forecast, a 23 percent discount to long-term median valuations, according to Thomson Reuters Starmine.
Citigroup, which upgraded HSBC shares to "buy" from "hold", expects HSBC's new management to raise dividends in coming years and sees the bank as a key beneficiary in the development of the offshore RMB market.
State-owned Bank of China Ltd was up 0.5 percent. It has offered yuan trading to U.S. customers, a sign that Beijing this year may increasingly promote the use of the Chinese currency in major financial centers.
Energy counters continued to trend up for a second session, helped by a surge in oil prices that took U.S. crude futures above $91 per barrel.
PetroChina Co Ltd rose 1.6 percent. CNOOC Ltd gained 1.6 percent, and refiner China Petroleum & Chemical Corp (Sinopec) rose 2.2 percent.
SHANGHAI EDGES UP
China's key stock index had risen 0.1 percent by midday Wednesday, with airlines rising on a flood of liquidity after the central bank hinted there would be no imminent official tightening steps.
The benchmark Shanghai Composite Index rose to 2,807.7 points, extending Tuesday's 0.4 percent rise. It remains above the 125-day moving average, now at 2,771.7, a level that is expected to provide support in the near term.
Central bank Deputy Governor Yi Gang said in remarks published on Wednesday that China should focus on increasing domestic demand and rebalancing its economy rather than relying on monetary policy to fight inflation.
The People's Bank of China used 14-day bond repurchase agreements on Tuesday for the first time in three years, a sign that it may refrain from raising bank reserve requirement ratios (RRR) ahead of the Lunar New Year, which falls on Feb. 3 this year.
China Southern Airlines Co Ltd rose 0.4 percent on its estimation of a sharp jump in 2010 profit and on yuan appreciation ahead of a state visit to the United States by President Hu Jintao on Jan. 18-21.
"The yuan's rise will be optimistic news for the index," said UOB Kay Hian analyst Wang Aochao, adding that corporate earnings would likely be another factor affecting the index.
Airlines, which spend heavily in dollars to purchase aircraft, would be major beneficiaries of yuan appreciation, traders said.
Air China Ltd rose 0.6 percent, while Hainan Airlines Co Ltd was up 1 percent.
Auto-related companies outperformed after official data showed car sales in China rose 33.2 percent in 2010.
Changchun FAWAY Automobile Components Co Ltd rose 4.9 percent, while SAIC Motor Corp Ltd was up 2.6 percent.
Analysts said small caps remained weak, however, which could hold the index back.
Shandong Jiufa Edible Fungus Co Ltd, the biggest loser in the Shanghai market, dropped 5 percent, while Huangshan Novel Co Ltd was the biggest loser in the Shenzhen market, falling 7.5 percent. (Editing by Chris Lewis)