Japanese stocks stage sharp revival of fortunes welcomed

Japanese stocks staged a stunning comeback yesterday, with the key index soaring nearly 8 per cent, or 1,200 points, to break back above the psychological 16,000-point barrier.

The Nikkei average of 225 leading shares ended at 16,283.32, up 1,200.80 points, or 7.96 per cent. It was the fourth-largest percentage rise and eighth-largest point gain in its history. The gains encouraged US and European markets yesterday.

Brokers said the bull run was set off by a perception that authorities were at last taking active steps to help Japan's ailing financial sector, after news that business at the country's 10th-largest commercial bank, Hokkaido Takushoku Bank Ltd, would be taken over by another regional bank.

The bank said it was handing over its regional operations in its home base on Japan's northern island of Hokkaido to North Pacific Bank, a medium-sized regional bank also based on the island, and seeking a buyer for its Tokyo-area operations.

The sudden surge in stocks came only one trading day after the Nikkei benchmark, stricken by Japan's economic woes and worries over financial trouble at Yamaichi Securities Co Ltd - one of Japan's big brokerages - tumbled below the 15,000 threshold for the first time in more than two years.

Nikkei 225 December futures gained by their daily limit of 1,000 points to 16,040, but some analysts urged caution.

"The bounce was rapid, especially since it came after the Nikkei's drop of about 2,000 points (over the past few weeks)," said Mr Akira Yaku, director of equities trading at SBC Warburg Securities.

"But considering the fact that there are still other financial institutions out there which still have problems, the rebound may not last long," he added.

Nevertheless, analysts said the steps taken by the financial authorities to deal with Hokkaido Takushoku Bank could mean they may take similar steps to assist other banks deep in trouble.

"This could be a big first step toward the use of public funds (to rescue the financial system), and such a move was a major source of relief for the market," said Mr Hiroyuki Nakai, chief investment strategist at Nikko Securities. The Bank of Japan said it would provide necessary liquidity for the bank to continue its operations until a planned transfer of its business is completed.

Also boosting Tokyo stocks were hopes that the government would come up with solid steps to revive the stagnant economy in the face of pressure from the United States.

The US Deputy Treasury Secretary, Mr Lawrence Summers, told the Japanese Finance Minister, Mr Hiroshi Mitsuzuka, in a meeting earlier yesterday in Tokyo, that measures, including fiscal spending, were needed to expand Japan's domestic demand.