Japan stocks surge more than 3% after Fed rate cut

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By Elaine Lies

TOKYO Jan 23 (Reuters) - Japan's Nikkei average jumped 3.4 percent on Wednesday, rebounding from its biggest one-day fall in more than six years after an emergency Federal Reserve interest rate cut prompted investors to pick up battered shares across the board.

A halt in the yen's rise against the dollar helped exporters such as Toyota Motor Corp (7203.T) power higher, while banks posted strong gains to claw back some of the ground lost in the market's slide on Tuesday to a 28-month low.

Market players said the Nikkei was due for a rebound, but the tone was still cautious over the outlook for the U.S. economy.

"People are still anxious despite the cut because this seems to prove that the U.S. economy is in serious trouble," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"I think this rise will be temporary, at best taking us up another 100 points or so, since so much about where the U.S. economy is going remains unknown." The benchmark Nikkei .N225 was up 3.4 percent by midsession at 12,994.32, a gain of 421.27 points. The broader TOPIX .TOPX rose 3.7 percent to 1,265.20, a gain of 45.25 points.

The market was closely watching moves in other Asian shares, especially Shanghai .SSEC, which was up 0.8 percent at 0243 GMT -- lagging the MSCI index of Asian stocks besides Japan .MIAPJ0000PUS, which had gained 3.9 percent. U.S. stocks ended down on Tuesday, the first trading day after a long weekend, but the decline was shallower than feared after the 75 basis points interest rate cut, the biggest reduction in the Fed's target lending rate in 23 years.

Despite this, the market view of the move was cautious.

"There's no question that it's had an impact today, but is it really enough for the longer term?" said Takahiko Murai, a general manager of equities at Nozomi Securities.

"Financial policy moves alone may not be enough. There may need to be things like injections of public funds into financial institutions."

Others said that while the Fed is widely expected to lower rates again when it meets next week, such a cut may already have been priced in and thus have minimal impact.

EXPORTERS POWER HIGHER

Shares of Toyota and other blue-chip exporters rose on hopes the rate cut would shore up the U.S. economy, a key market for Japanese goods. Their gains were helped by a halt in the yen's recent strengthening against the dollar, which erodes the value of exporters' overseas earnings when converted back into yen.

The dollar was fetching 106.81 yen JPY=, up from a 2-½ year low of 105.61 yen on Tuesday but slightly off earlier highs that saw it venture briefly to about 107 yen.

Toyota surged 5.7 percent to 5,160 yen, while Honda Motor Corp (7267.T) was up 3.6 percent at 3,020 yen. Canon Inc (7751.T) gained 4 percent to 4,390 yen and Toshiba Corp 6502. jumped 5.9 percent to 737 yen.

Bank shares, including industry leader Mitsubishi UFJ Financial Group (8306.T), rebounded after the Fed's move boosted U.S. banks, which should benefit from lower borrowing costs.

Mitsubishi UFJ jumped 6.3 percent to 917 yen, while No. 2 Mizuho Financial Group (8411.T) climbed 5.4 percent to 449,000 yen and Sumitomo Mitsui Financial Group (8316.T), Japan's third-biggest bank, surged 6.1 percent to 743,000 yen.

Trade was moderate on the Tokyo exchange's first section, with 1.04 billion shares changing hands, compared with last week's morning average of 1.14 billion.

Advancing stocks beat declining ones by a ratio of more than 13 to one.