HK shares end up 0.8 pct; worst quarter since 2001

* HK shares end higher after dropping 6 pct

* BYD extends rally on Buffett's stake buy

* Shipping stocks hit by fall on global freight index

(Updates to close)

By Parvathy Ullatil

HONG KONG (Reuters) - Hong Kong shares recouped steep early losses to end 0.8 percent higher on Tuesday as a two-day, 10 percent slide spurred sellers to cover short postions on expectations U.S. lawmakers would approve a stalled $700 billion bailout package.

But the main index still recorded its worst quarterly decline since the September 2001 airliner attacks on the United States amid a flurry of bank failures and bailouts that changed the landscape of Wall Street.

"If you watched the congressional vote last night, you would know that the rescue plan got stuck essentially because of dirty politics," said Peter Lai, director with DBS Vickers.

"Expectations are high that the bailout will be approved soon with amendments and that should spur a big rally."

Hang Seng Index .HSI ended up 135.53 points at 18,016.21 after dropping more than 6 percent earlier as U.S. lawmakers held up the rescue plan, knocking hopes for an economic revival.

The index fell more than 10 percent between Friday's close and today's low of 16,799.29 and dropped 18.5 percent in the September quarter.

The Dow Jones Industrial Average .DJI posted its biggest ever single day points drop on Monday but the Dow futures DJc1 were trending higher on Tuesday, supporting Hong Kong stocks.

With a market holiday on Wednesday, traders were wary of holding their short positions in case the bailout plan is approved.

China Mobile (0941.HK) led gainers with a 2.5 percent rebound after languishing at 18-month lows in recent weeks.

Local utility stocks rallied on their safe haven appeal while some property counters bounced back from Monday's sharp declines in late afternoon trade.

"Investors reckoned that Hong Kong stocks had reached an attractive level with the Hang Sang getting down between 17,000 to 16,000," said Louis Wong, research director with Phillip Securities.

The Hang Seng Index shares are currently trading at under 11 times estimated earnings this year, compared with a price-to-earnings multiple of over 20 times at its peak in October 2007.

BYD (1211.HK) rose 7.9 percent among a sea of red tickers to build on Monday's jump after a unit of Midas-touch investor Warren Buffett's Berkshire Hathaway (BRKa.N) picked up a 10 percent stake in the rechargeable battery manufacturer.

Hong Kong's largest developer, Sun Hung Kai Properties (0016.HK) plumbed a near-three year low, losing 3.3 percent as more local banks were seen following HSBC's (0005.HK) precedent and raising mortgage rates.

Sino Land (0083.HK) dropped 4.5 percent but conglomerate New World Development (0017.HK) bounced back from Monday's 13.2 percent slide to close 2.7 percent higher.

Major brokerage firms likened the ongoing slump in local property prices to that witnessed during the Asian financial crises of the late 1990s and warned of bigger corrections.

Mainboard turnover rose to HK$71.8 billion ($9.2 billion) as compared with HK$55 billion on Monday.

Local regulators sought to calm investors with promises of liquidity injections into the banking system if necessary but cautioned investors of volatility in the markets.

The China Enterprises Index .HSCE of top mainland Chinese companies climbed 1.3 percent to 9,070.31.

Top lender ICBC (1398.HK) clawed back from an early 8.6 percent slump to finish 1.6 percent higher while No.2 lender China Construction Bank (0939.HK) rose 2.7 percent.

Utility company Hongkong Electric (0006.HK) rose 4.4 percent while CLP Holdings (0002.HK) jumped 4.1 percent.

A 6 percent slide on the global freight index .BADI amid signs of slowing Chinese demand for commodities dragged shipping stocks. China Cosco (1919.HK), the nation's largest shipping conglomerate fell 3.2 percent while container operator China Shipping Container Lines (2866.HK) plunged 7.1 percent.

Wing Lung Bank 0096.HK rallied 6.2 percent to HK$155.10 after China Merchants Bank (3968.HK) announced the completion of its delayed acquisition of the Hong Kong lender. The stock surged to a historic high of HK$156 earlier.

Shares in China Merchants, China's sixth largest lender ended down 2.8 percent.

Gold jeweller Hang Fung Gold Technology (0870.HK) plunged more than 60 percent, before its suspension on Tuesday afternoon, as investors reacted to the death of its chairman.

($1=HK$7.8)

(Editing by Lincoln Feast;)