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HONG KONG, Apr 18 (Reuters) China's landmark move to let its investors buy securities abroad will give added impetus to a Hong Kong bourse already at multi-year highs, diverting some $7 billion to the territory over three years in a process that could transform the market.

Analysts reckon the move could eventually cement Hong Kong as not only a favourite for raising capital, but also the investment destination of choice for Chinese with $1.8 trillion in savings confined mostly to murky and immature domestic markets.

The long-awaited Qualified Domestic Institutional Investor (QDII) scheme -- part of a relaxation of capital controls as China moves toward a freely floated currency -- was broader than expected, allowing banks for instance to invest overseas on behalf of clients.

''This is a landmark move for China, to partially open the door in its capital account. The significance of this, in my opinion, is perhaps greater than the exchange rate reform in July,'' said Dong Tao, senior regional economist at Credit Suisse.

On Tuesday, in its first session since Beijing announced the QDII scheme over the Easter holiday, the blue-chip Hang Seng Index rose 1.2 percent to its highest since September 2000.

The index of Hong Kong-listed Chinese enterprises was up 3.8 percent at its highest for eight-and-a-half years.

Shares in minerals, power and steel companies surged.

China Mobile, topping the blue chip gainers' list, had risen 3.4 percent by the midsession, while top offshore oil firm CNOOC Ltd. gained almost 4 percent.

Tao said the immediate impact on global equity markets would be small, with the initial flow into the rest of the world -- Hong Kong included -- estimated at US$4-5 billion over several months.

Investors now await crucial detail -- such as precisely how much, and when, individuals or institutions would be allowed to invest in stocks or bonds.

Deutsche Bank expects flows from China to Hong Kong equity to be just $2 billion this year, rising to $7 billion in 2008.

Cash flows to other global stock markets would be minimal.

But that's just a start, analysts say.

''In the past, it's a window to raise funds for Chinese companies. And, in the future, it might also be itself a destination for Chinese money abroad,'' Tao said.

OPENING A WINDOW Relaxing the capital account opens a door for Chinese money to flow into Hong Kong's equity market, long considered more attractive than domestic bourses because of higher dividends and greater transparency.

The Hang Seng could test 18,000 points in the third quarter, analysts said.

''The Hang Seng has risen on the good news and the rally is across the board,'' said Marco Mak, director of research at Tai Fook Securities.

Chinese metal companies extended recent gains, with Zijin Mining Group Co. Ltd. jumping 11 percent and Jiangxi Copper Co.

Ltd. up 11.5 percent.

The news also electrified power counters.

Second-ranked Hong Kong-listed Chinese power firm Datang International Power Generation Co. surged more than 9 percent, while number-three electricity producer Huadian Power International Corp. Ltd. gained 8 percent, and the largest player, Huaneng Power International Inc., rose 4.8 percent.

''QDIIs should prefer to gain exposure to high-quality China names that are not available in the A share markets, such as oil, telcos, insurers and banks,'' Deutsche Bank said in a report.

The news had minimal impact on Chinese shares, with the benchmark Shanghai composite index rising 0.73 percent on Tuesday after gaining 1.4 percent on Monday to close at its highest in more than 17 months.

''Worries linger over possible funds flowing out of the A share markets due to the launch of QDII last Friday,'' said Zhou Lin, analyst with Huatai Securities. ''But talk of the launch had circulated on markets for a long, long time.

''Also, investors don't expect an immediate heavy outflow of money to overseas markets.'' REUTERS PV SND1420