The Nikkei average climbed 2 per cent today on short-covering after three days of losses, with market participants calling the move a short-term rebound amid fears about sovereign debt in Europe and a US economic slowdown.
A regional rally helped Tokyo extend gains in the afternoon.
Analysts also said that after Tokyo's 5.2 per cent drop in the previous three days, stocks listed on the main board were trading at an attractive price-to-book ratio averaging 0.92.
But wariness persisted ahead of the Federal Reserve's Beige Book of US regional economic conditions to be released later today, which could provide fresh clues on the strength of the US economy.
The benchmark Nikkei rose 2 per cent to 8,763.41. The broader Topix index added 1.7 per cent to 753.63.
Volume was moderate with about 1.8 billion shares changing hands on the Tokyo stock exchange's main board, around last week's daily average.
Over the past three losing days the Bank of Japan bought exchange-trade funds worth 66.9 billion yen ($868 million), which limited losses and lifted market sentiment. Japanese pension funds also bought shares, market participants said.
Elpida, the world's third largest DRAM maker, rose 7.5 per cent to 499 yen after it said it is suing Taiwanese rival Nanya Technology in the United States for damages over what it claims to be a violation of four patents.
Other exporters were also higher on short-covering, with Toyota rising 2.9 per cent to 2,680 yen, Honda adding 1.6 per cent to 2,376 yen and Sony gaining 3.2 per cent to 1,570 yen.
Shippers outperformed, with the Topix sea transport subindex rising 2.9 per cent, after Credit Suisse started coverage of Japan's three major shipping companies at "outperform".
Mitsui OSK Lines gained 4 per cent to 316 yen, Nippon Yusen rose 2.3 per cent to 223 yen and Kawasaki Kisen added 3.3 per cent to 187 yen.
Kirin Holdings was up 3.2 per cent at 994 yen after the Nikkei business daily reported that the beverage company had found a lactic acid bacterium that invigorates immune cells. The report quoted Kirin as saying the bacterium was safe for use in yoghurt and cheese products, and it aims to develop nutrition supplements and soft drinks containing it.
Gree soared 13.2 per cent to 2,614 yen and DeNa was up 8 per cent at 3,995 yen in heavy trading after Mitsubishi UFJ Morgan Stanley Securities raised its rating on both the mobile social gaming operators to "outperform" from "neutral".
It cited an improved outlook for the social gaming sector, and estimated the domestic market will be worth 400 billion yen ($5.2 billion) by 2013.
Reuters
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