The Nikkei average surged 10 percent on Thursday to its highest close in more than a week, buoyed by exporters such as Kyocera on a softer yen, amid talk of a rate cut by the Bank of Japan after similar moves by the United States and China.
Mitsubishi Corp and other trading houses shot up on a combination of bargain-hunting and a surge in commodity prices that also boosted firms such as shippers. Oil rose above $70 a barrel on Thursday.
"Expectations for the BOJ to cut interest rates mounted as the U.S. cut rates as expected and it'll almost certainly do so again," said Soichiro Monji, chief strategist at Daiwa SB Investments.
"But if I have to wrap things up in one word, it's still a rebound. The question is how far the rebound can take the market, and that'll be difficult as the economy won't improve overnight and currency markets are still unstable."
In active trade, the benchmark Nikkei climbed 817.86 points to end at 9,029.76, the highest close since Oct. 22.
The 10 percent jump was the biggest one-day gain since Oct. 14, when the Nikkei surged 14.2 percent for the biggest one-day gain in its history.
The benchmark remains down 41 percent so far this year, but it has gained 26 percent over the past three days.
The broader Topix shot up 8.3 percent to 899.37.
The Federal Reserve cut U.S. interest rates by a half-percentage point on Wednesday to try to stave off a prolonged recession and left the door open to further reductions if needed. Norway and China also made cuts.
Expectations grew that Japan's central bank would also cut its already rock-bottom interest rates for the first time in seven years when its policy board meets on Friday.
The yen fell broadly. The dollar rose 1.6 percent to 99.00 yen, staying well above a 13-year trough of 90.87 yen hit on trading platform EBS late last week.
Market analysts also said moves around the world to counter the credit crisis further improved investor confidence.
The International Monetary Fund on Wednesday approved a short-term financing facility for emerging market economies that have a good economic track record and the Fed approved currency swap lines with central banks in Brazil, Mexico, South Korea and Singapore to help them combat the credit crunch by ensuring access to U.S. dollars.
"Investors found reasons to buy after various countries launched steps to stimulate liquidity, and that has started affecting currencies and stock markets," said Yumi Nishimura, manager at Daiwa Securities SMBC.
After the market close, Prime Minister Taro Aso is set to unveil Japan's second economic package in two months, and some in the market said expectations for a BOJ rate cut and the economic package gave investors fresh hope.
But others remained sceptical.
"There's no question that this kind of step needs to be done, not only in Japan but around the world, but there are strong doubts about how effective Japan's package will be," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.
EXPORTERS JUMP
Electronics parts maker Kyocera shot up 9.2 percent to 5,930 yen, while Canon Inc surged 11.4 percent to 3,040 yen.
Honda Motor soared 13.1 percent to 2,760 yen and Toyota Motor Corp climbed 11.4 percent to 3,900 yen.
Toyota said on Thursday that U.S. automaker General Motors Corp had not asked it for help in turning around its business, denying a Kyodo news report.
Trading firms surged after base metals climbed on Wednesday, with a rise in crude oil prices giving an additional lift.
Shares of Mitsubishi powered higher by 17.9 percent to 1,804 yen, while Mitsui & Co gained 12 percent to 935 yen.
Shippers, battered until recently, saw benefits from the wave of buying, with the sea transport subindex rising 16.5 percent to become the top gainer among the subindexes.
Kawasaki Kisen soared 19.8 percent to 423 yen and Mitsui O.S.K. Lines jumped 17.9 percent to 526 yen. Nippon Yusen , Japan's largest shipper, gained 13.7 percent to 515 yen.
Trade was active on the Tokyo exchange's first section, with 3.03 billion shares changing hands, above last week's daily average of 2.38 billion.
