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.