Government offices and schools are expected to remain closed for the rest of the day as Typhoon Nesat makes its way past Hong Kong en route to south China, after passing through the Philippines where it left at least 35 dead and 45 missing.
"Nesat is closest to Hong Kong now," the observatory said in a statement. "Gale winds are expected to persist over Hong Kong."
The Hong Kong Observatory's No.8 typhoon warning signal will remain in effect for most of the day, it said on its website. That means the city's financial markets will continue to be closed for the afternoon session.
Earlier, the Hong Kong stock exchange had said trade may resume if the signal is cancelled by 0400 GMT.
Hong Kong has a series of different typhoon warnings. Schools, businesses and government services stop when any No.8 or above typhoon warning is hoisted.
As of 0245 GMT, Nesat was centred about 350 kilometres (220 miles) southwest of Hong Kong, which saw winds of up to 121 kilometres per hour. The tropical cyclone on Tuesday hit the Philippines, where it also caused an estimated 100.3 million pesos ($2.3 million) in damage to agriculture.
No deaths were reported in Hong Kong, but local television showed footage of at least two people who were hospitalised after being hit by falling debris as a result of strong winds.
A ship weighing 1,677 deadweight tonnes ran aground in the early hours of Thursday morning, but there were no injuries, the Hong Kong Marine Department said.