Hong Kong stocks staged a big rally on Wednesday. Analysts said the market is likely to continue recovering as the Federal Reserves' pledge to keep the rates low may help investors somehow regain confidence.

However, where the market goes in the long run depends on the economic recovery in the United States and the Euro zone, analysts said.

The Hang Seng Index had plunged over 2,500 points since last Friday, once hitting the bottom of 18,868 points. Although the market rebounded to some ground on Wednesday, the recovery is "not enough".

Larry Jiang, the chief strategist of Guotai Junan International, told Xinhua that the sharp slump in the Hong Kong stock market together with the panic selling, are not "rational" as the city has "good" economic fundamentals.

Hong Kong shares reeled following the down trend of the global stock markets, in reaction to the downgrade of the U.S. government debt by the Standard & Poor's (S&P) last Friday. Jiang said, the rating cut has intensified the fears over the economic outlook of the United States.

Jiang said Hong Kong stocks are now likely to rebound in the wake of the "irrational" plunge, especially after the Fed pledged to keep its benchmark rate close to zero at least through mid-2013, a move may help keep borrowing rates low and drive investors into riskier assets like stock.

Daniel Chan, the chief economist of BWC Capital Market, also said the market's recovery on Wednesday was largely due to Fed's decision, but the lack of strength showed the continued concerns from investors. "The outlook of Hong Kong's stock market is not optimistic".

Where the market goes depends on the external environment, especially whether the United States and the Euro zone can fix the debt problem, as well as their real economy, analysts said.

Jiang said the short-term impact on the stock markets from the U.S. debt rating cut has come to an end, but the long-term influence remains to be seen.

He said: "S&P made a very brave judgment, which will force the U.S. and European governments to face the fact and try hard to fix the debt crisis and other problems."

Jiang said whether the United States and the Euro zone can introduce effective rescue measures to convince the markets in the short, medium and long run, is the key factor in shaping the future of the stock markets.

As intensifying debt crisis has spread to Italy and Spain. Chan said the European Union has to expand the stabilization fund to provide the two countries enough support, and that needs approvals from all the EU members.

Chan said the outlook of Hong Kong's stock market is still not clear before the EU members reach an agreement in the coming October.

In addition, Chan expected the European economy to enter a shrinking period and thus drag the global economy.

Chan said the stock markets cannot perform well under the weak economic environment. He also has concerns that the potential capital outflow may be challenging to Hong Kong's market.