Nikkei jumps 3.8 pct, buoyed by crisis plan hopes

*Nikkei up 3.8 percent on news of U.S. plan for credit crisis

*Nikkei loses 2.4 percent in tumultuous week

*Financial shares soar after sharp sell-off the previous day

*Shippers jump on freight index, exporters gain on soft yen (Adds stocks and comments)

By Aiko Hayashi

TOKYO, Sept 19 (Reuters) - Japan's Nikkei share average rose 3.8 percent on Friday, rebounding from a three-year closing low hit the previous day, on hopes for a more comprehensive solution to the financial crisis that has roiled markets worldwide.

Financial shares such as top lender Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz) surged after news that U.S. Treasury Secretary Henry Paulson has been promoting a proposal to congressional lawmakers that would create an entity to deal with the billions of dollars of bad debt still clogging the financial system. [ID:nHKG93628] [ID:nN18482717]

The idea has been compared to the Resolution Trust Corp formed after the savings and loan industry meltdown in the 1980s, and market analysts in Tokyo said hopes for the entity largely contributed to the day's market jump.

"The set-up of such entity could lead to a fundamental solution to the problems. With this, we can avoid an extreme decline in the economy for now," said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.

"But bad loans will continue to exist as long as fundamentals keep getting worse. The situation would be a lot different if the government could come up with measures that can impact the economy."

The benchmark Nikkei average .N225 added 431.56 points to end at 11,920.86, after booking its lowest close since June 2005 on Thursday. The broader Topix climbed 4.7 percent to 1,149.12.

The day's rally in a broad range of stocks helped the market pare some of the losses logged in a tumultuous week in which AIG (AIG.N: Quote, Profile, Research, Stock Buzz) was bailed out, Lehman Brothers LEHMQ.PK went bankrupt and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) was forced into partnership with Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz).

Despite a series of unsettling events, the Nikkei is down just 2.4 percent for the week, though it has lost about 22 percent so far this year.

Takahiko Murai, a general manager of equities at Nozomi Securities, said investors are still waiting to see details of the U.S. crisis plan.

"The market reaction could still change depending on the nature of the new entity. One focus will be whether they will inject public funds to boost the capital of financial institutions," he said.

The Fed and other top central banks also offered on Thursday to pump billions of dollars into global markets to ease funding pressures. [ID:nSP129521]

FINANCIALS GAIN

Mitsubishi UFJ jumped 11.5 percent to 862 yen and No.2 Mizuho Financial Group (8411.T: Quote, Profile, Research, Stock Buzz) surged 12.6 percent to 447,000 yen.

Nomura Holdings (8604.T: Quote, Profile, Research, Stock Buzz) climbed 9.6 percent, while regional lender Bank of Yokohama (8332.T: Quote, Profile, Research, Stock Buzz) soared 11.9 percent.

Shipping firms such as Kawasaki Kisen Kaisha (9107.T: Quote, Profile, Research, Stock Buzz) steamed ahead after the Baltic Exchange's chief sea freight index .BADI for global raw materials extended gains on Thursday to rise 2.1 percent.

Shares of Kawasaki Kisen climbed 10.5 percent to 755 yen, while Mitsui OSK Lines (9104.T: Quote, Profile, Research, Stock Buzz) jumped 10.1 percent to 1,091 yen and Nippon Yusen KK (9101.T: Quote, Profile, Research, Stock Buzz) advanced 9.9 percent to 802 yen.

Exporters such as Canon Inc (7751.T: Quote, Profile, Research, Stock Buzz) and Fanuc Ltd (6954.T: Quote, Profile, Research, Stock Buzz) jumped on a softer yen.

Digital camera maker Canon gained 8.1 percent to 4,260 yen and industrial robot maker Fanuc shot up 13.5 percent to 8,340 yen. Both stocks were among the top positive contributors to the Nikkei.

The dollar climbed 0.8 percent to 106.73 yen , jumping from the day's lows around 105.40 yen.

Nippon Steel Corp (5401.T: Quote, Profile, Research, Stock Buzz) and other steel makers rose after news that the world's top producer ArcelorMittal (ISPA.AS: Quote, Profile, Research, Stock Buzz)(MT.N: Quote, Profile, Research, Stock Buzz) plans to reduce production eased concerns about a sharp drop in steel prices, and fourth-ranked POSCO (005490.KS: Quote, Profile, Research, Stock Buzz) said it expects steel prices to stay firm. Nippon Steel was up 10.8 percent at 442 yen, while JFE Holdings (5411.T: Quote, Profile, Research, Stock Buzz) gained 6.9 percent to 3,890 yen. Sumitomo Metal Industries (5405.T: Quote, Profile, Research, Stock Buzz) rose 6.3 percent to 370 yen.

Trade picked up on the Tokyo exchange's first section, with 2.6 billion shares changing hands, against last week's daily average of 2.1 billion.

Advancing stocks outnumbered decliners by more than 2 to 1. (Reporting by Aiko Hayashi; Editing by Michael Watson)