Nikkei surges over 14 pct in record 1-day gain

Tue Oct 14, 2008 3:03am EDT

*Nikkei surges over 14 pct on global steps for banks

*Nikkei posts biggest 1-day gain in its 58-year history

*Topix up nearly 14 percent

*Exporters driven up by stronger dollar, banks surge

*Mitsubishi UFJ soars after Morgan Stanley deal (Adds comment, details)

By Aiko Hayashi

TOKYO, Oct 14 (Reuters) - The Nikkei average soared more than 14 percent on Tuesday, the biggest one-day gain in its 58-year history, after governments around the world pledged to support struggling banks and restore confidence in the financial system.

It recouped just over half the losses incurred last week, when the Nikkei lost 24 percent.

Mitsubishi UFJ Financial Group (8306.T) shares surged 14 percent, up by their daily limit after Japan's top bank delivered on a planned $9 billion investment in U.S. firm Morgan Stanley (MS.N). [ID:nLD319859]

Market participants said the jump in Tokyo shares was mainly due to short covering and not due to new inflows of money.

"There's relief that banks probably won't go bankrupt thanks to the capital injection plans," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"But after rebounding to some extent, we will inevitably enter a phase of thinking about how the steps will actually impact the global economy."

The benchmark Nikkei .N225 surged 14.2 percent or 1,171.14 points to 9,447.57. The climb surpassed a 13.2 percent jump logged on Oct. 2 1990.

The broader Topix .TOPX gained 13.7 percent to 956.30.

Earlier in the day, sharp gains triggered a circuit breaker, halting trade in Nikkei futures on the Osaka bourse and Topix futures trading on the Tokyo bourse.

Traders also said that the market surged in part on expectations of a further rise in U.S. stocks. The U.S. Treasury is set to announce a plan to inject $125 billion of capital into the top nine U.S. banks. [ID:nN13487237].

The U.S. move follows pledges by the governments of Britain, Germany, France and other European countries of more than 1 trillion euros ($1.36 trillion) to bolster their own banks [ID:nLD194537].

Japan also unveiled steps to stabilise its financial markets, including a possible injection of public funds into regional banks that the government said would be aimed at enhancing smooth financing for smaller firms facing a possible credit crunch. [ID:nT212163] But market participants remained wary, noting that rises above 9,600 level may take some time. "We still don't know exactly how concrete the U.S. plan will be, and there's concern that the scale may be small, so there's some doubt about whether it will really be enough," said Takahiko Murai, general manager of equities at Nozomi Securities.

Wall Street roared back from its worst week ever with one of its best single days ever on Monday, boosted by bargain-hunting after eight days of losses. Japanese markets were closed on Monday for a holiday.

MITSUBISHI UFJ, BANKS RALLY

Mitsubishi UFJ Financial Group (8306.T) shares ended at 810 yen, a gain of 14.1 percent. Completion of the deal sent shares in Morgan Stanley soaring and helped power a rally in financial stocks on Wall Street that spilt over into Tokyo.

Sumitomo Mitsui Financial Group (8316.T), the country's third-largest lender, jumped 16.9 percent to 645,000 yen and Japan's banking index .IBNKS.T rose 15.3 percent.

Nomura Holdings (8604.T), Japan's biggest brokerage, shot up 16.3 percent to 1,425 yen.

Shares of carmakers outperformed the broader market as a softer yen and improved stock market sentiment sparked active buying of recently battered blue chips.

The dollar inched up 0.2 percent from late New York to 102.22 yen JPY=, having come off a six-month low of 97.91 yen hit on Friday.

Toyota Motor (7203.T) rose 15.5 percent to 3,720 yen, Honda Motor (7267.T) gained 17.8 percent to 2,485 yen and Nissan Motor (7201.T) jumped 17.2 percent to 544 yen.

Mazda Motor (7261.T) jumped 9 percent to 314 yen after Reuters and other media reported loss-laden Ford Motor (F.N) was considering cutting its 33 percent stake in the Japanese carmaker by 20 percentage points to generate cash. [ID:nTK0197480]

Canon (7751.T) climbed 16.1 percent to 3,600 yen.

Trade fell off slightly on the Tokyo exchange's first section, with 2.38 billion shares changing hands, below last week's daily average of 2.92 billion.

Advancing stocks outpaced declining ones by 67 to 1. (Additional reporting by Elaine Lies; Editing by Edwina Gibbs)