Hong Kong shares rise 3.4 pct in global rally

* HK shares pare gains amid flat China market

* Investors concerned about volatility on Tuesday

* Commodity stocks surge as oil, gold rally for second day

* ICBC up after Goldman Sachs adds it to conviction buy list

* Hutch Telecom drops as investors exit after dividend payout

(Updates to close)

By Parvathy Ullatil

HONG KONG, Nov 25 (Reuters) - Hong Kong shares rose 3.4 percent on Tuesday after Wall Street gave a resounding thumbs up to the government's decision to rescue Citigroup, while resurgent oil prices helped energy stocks to notch up big gains.

But some investors raised concerns over sharp swings in share prices during the 10-minute closing auction, ahead of the quarterly rebalancing in the MSCI Barra indices. Last week, market regulators warned investors about share price and turnover volatility during the MSCI index readjustment which becomes effective on Nov.25. [ID:nHKG372977]

"Stocks that are removed from the index are sold down sharply and those that are added are marked at a premium during the closing auction supporting speculation and share price manipulation," said Andrew To, sales director with Tai Fook Securities.

"This is a bit like playing in a casino and gives long term investors an uneasy feeling."

Two local brokers cited China Southern Airlines (1055.HK: Quote, Profile, Research, Stock Buzz), which fell 8.8 percent during the closing auction to take the day's total losses to 12.6 percent, and China Eastern (0670.HK: Quote, Profile, Research, Stock Buzz), down 11 percent, as examples of shares heavily offloaded in the final 10-minute window.

China's top lender, ICBC (1398.HK: Quote, Profile, Research, Stock Buzz), surged 9.3 percent after Goldman Sachs added it to its conviction buy list, citing its lower risk profile and less net interest margin pressure than its peers.

The benchmark Hang Seng Index .HSI ended 420.66 points higher at 12,878.60 after rallying above 13,000 points earlier.

Other regional markets also rose, but a drop in the mainland bourses limited gains in the local market.

"We were waiting for an indication from Wall Street on how the Citi bailout should be received, as the local interpretation of the rescue is quite different from what U.S. investors think," said Y.K. Chan, strategist with Phillip Capital Management.

Hong Kong shares fell on Monday as the anticipated Citigroup bailout plan failed to ignite buying, but U.S. stocks surged as the plan eased investor concerns over the financial sector.

Chan added, however, that overall weakness in the economy had limited gains and the market could still fall below its October low in the absence of new stimulus steps from the U.S. and China.

Mainboard turnover rose to HK$41.2 billion from HK$35 billion on Monday.

CNOOC (0883.HK: Quote, Profile, Research, Stock Buzz) pared gains to 6.6 percent after jumping more than 10 percent earlier as the overnight rally in oil prices lost momentum in Asian trade Tuesday.

Asia's largest oil and gas producer, PetroChina (0857.HK: Quote, Profile, Research, Stock Buzz), gained 4.9 percent, while top refiner Sinopec Corp (0386.HK: Quote, Profile, Research, Stock Buzz) added 4.2 percent.

The China Enterprises Index of top locally listed mainland Chinese firms .HSCE rose 4.4 percent to 6,658.00.

Hutchison Telecommunications (2332.HK: Quote, Profile, Research, Stock Buzz) slid 16.7 percent from its ex-dividend share price of HK$2.28, as investors exited shares in the company amid the absence of any major expansion plans in the short term following its exit from India.

The stock finished Monday at HK$9.28 and was adjusted for the special dividend payout resulting for the sale of its stake in Indian mobile firm Hutchison Essar last year, bringing its share price to HK$2.28. It closed 5.7 percent lower at HK$2.15.

(Reporting by Parvathy Ullatil; Editing by Nick Macfie)