TOKYO Japan's Nikkei share average advanced 1.4 percent on Monday to trade above 9,500 for the first time in more than six months, encouraged by China's move to stimulate growth by cutting the amount of cash banks must hold in reserve.
Coupled with receding concerns about chances of a near-term Greek debt default, this helped put the market into a so-called "risk-on" mode, with investors picking up riskier assets and cutting back defensive positions.
Nicholas Smith, Japan strategist at CLSA, said the rally had further to go and it was not time to take profits.
"You are not going to get vertigo when you are at the bottom rung of the step ladder. Japan has come down so far. It is absolutely at extreme valuations," he said.
By the midday break, the Nikkei .N225 climbed 128.76 points to 9,512.93, breaching its one-year moving average near 9,427.
The benchmark Nikkei is up more than 8 percent this month, taking its gain for the year-to-date to 12.5 percent supported by a run of strong economic data out of the United States, as well as the European Central Bank's liquidity injection of nearly half a trillion euros and further easing steps by the Bank of Japan.
If the index were to finish the month with the current gains, it would be the best February performance since 1991.
The yen fell to a 6-1/2-month low against the dollar on Monday, which boosted Japanese exporters.
Toyota Motor Corp (7203.T) and Honda Motor Co Ltd (7267.T) both gained 1.7 percent, while construction machinery firm Komatsu Ltd (6301.T) surged 2.9 percent and rival Hitachi Construction Machinery Co Ltd (6305.T) climbed 4.4 percent.
Steelmakers Nippon Steel Corp (5401.T), Sumitomo Metal Industries Ltd 5405.T., Kobe Steel Ltd (5406.T) and JFE Holdings Inc (5411.T) were up between 5.2 and 7.7 percent, also helped after Credit Suisse lifted target prices for the four companies.
The broader Topix .TOPX was up 1.4 percent at 821.43. Trading volume on main board after the morning session was 76 percent of its full daily average for the past 90 days.
According to Thomson Reuters Datastream, the Topix carries a 12-month forward price-to-earnings ratio of 0.9, much cheaper than the U.S. S&P 500's .SPX 1.9 times.
Some market participants were sounding cautious after the sharp gains, however.
"There is a potential for overshoot, certainly. If there is, for instance, a delay in the agreement on a Greek bailout or if there is a bad data point in the U.S., then the market might pull back. There is a merit for some hedging," said Naomi Fink, head of Japan strategy at Jefferies Japan.
Although she was upbeat on the market's prospects this year, Fink said investors could cut back some of their long positions in cyclicals and take a more balanced approach if they were concerned about any sharp correction in the short-term.
Some investors also bought the Nikkei volatility index .JNIV as protection, with the gauge up 5 percent on Monday.
Trading firm Mitsubishi Corp (8058.T) jumped 5.3 percent after it agreed to buy a 40 percent stake in the Cutbank Ridge gas field in the Canadian province of British Columbia, operated by Encana Corp (ECA.TO).
A Goldman Sachs upgrade to "buy" from "neutral" also raised the appeal of Mitsubishi Corp.
Fuji Heavy Industries Ltd (7270.T) eased 2.7 percent after it says its cleaning robot business has overcharged Japan's trade ministry and other government agencies by about 200 million yen ($2.5 million). ($1 = 79.3600 Japanese yen)