The Hong Kong dollar rose against the U.S. dollar late Tuesday for a second consecutive session, supported by continued strength in the domestic stock market, although market participants were cautious ahead of Wednesday's European Union summit.

In late Asian trade, the U.S. dollar was at HK$7.7753, down from HK$7.7788 late Monday. The U.S. unit was fixed at HK$7.7751 earlier Tuesday.

Traders said they expect easing concerns about euro-zone debt issues to continue to weigh on the U.S. dollar, but it is likely to stay in a narrow range as many investors have retreated to the sidelines ahead of the next E.U. summit Wednesday. They said they expect the U.S. dollar to trade between HK$7.7740 and HK$7.7780 Wednesday.

At 0733 GMT, the blue-chip Hang Seng Index was up 0.4% at 18,850.85, extending its 4.1% gain Monday on easing concerns about debt problems in Europe and a recent improvement in the preliminary HSBC China Manufacturing Purchasing Managers Index.

"I've spotted a major local bank selling the (U.S. dollar) aggressively, with a total size of over US$200 million. I expect the pair to retain a downward bias as some firms might follow suit," said a trader at a Singapore bank.

Another trader at a U.S.-based bank said he expects the pair to find support around 7.7740 amid caution ahead of the EU summit.

The one-year U.S. dollar/Hong Kong dollar forward contract was quoted at a discount of 288 points to the spot rate, compared with a 291-point discount late Monday.