Japan Stocks Gain on Bank Support Plans; Nikkei Rises by Record

By Masaki Kondo and Toshiro Hasegawa

Oct. 14 (Bloomberg) -- Japanese stocks rallied, driving the Nikkei 225 Stock Average to its biggest gain on record, as U.S. and European government plans to buy bank stakes boosted confidence that global financial markets will avoid collapse.

The Nikkei climbed 14.2 percent, rebounding from the worst week in its 59-year history. Sumitomo Mitsui Financial Group Inc. and Mitsubishi UFJ Financial Group Inc. jumped more than 14 percent as people briefed on the matter said the U.S. will buy stakes in nine banks. Stocks also rallied after Japan's government said it may suspend the sale of state-held shares to boost stocks. Markets were shut for a holiday yesterday when global equities soared.

``Today's surge in the stock market reflects how fearful investors have been about the consequences of the credit turmoil,'' said Masanori Ikunaga, who helps manage the equivalent of $4.1 billion at Sumitomo Mitsui Asset Management Co. ``Governments have brought up all the essential, if not perfect, measures people in the market wanted to see.''

The Nikkei jumped 1,171.14 to close at 9,447.57 in Tokyo, with 202 of its constituents climbing at least 10 percent. The broader Topix index rose 115.44, or 14 percent, to 956.30, the steepest advance since its inception in 1969.

The Nikkei tumbled 24 percent last week and the Topix fell 20 percent, the most on record, as the deepening credit crisis threatened to topple more financial companies. Japanese markets were closed yesterday when the MSCI World Index jumped 9.5 percent amid speculation state investments in banks will drive down money-market rates.

Government Intervention

Today's gains triggered a suspension of futures trading in Osaka. Sony Corp. led gains among companies reliant on overseas sales as the yen weakened for a fourth day against the dollar.

Governments across the globe are working on plans to support banks as global stock markets lost as much as $28 trillion of their value this year, driving the MSCI World down by 36 percent. The collapse of the U.S. mortgage market has caused $636 billion of writedowns and losses at global financial institutions and resulting in the failures of Lehman Brothers Holdings Inc. and Bear Stearns Cos.

The Bush administration will announce a plan to purchase stakes in nine major banks including Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley, said the people. The U.K. agreed to invest 37 billion pounds ($65 billion) in banks such as Royal Bank of Scotland Group Plc.

Sumitomo Mitsui, Japan's third-biggest bank, added 17 percent to 645,000 yen, the sharpest advance since it first traded in December 2002, while bigger rival Mizuho Financial Group Inc. jumped by its 15 percent daily limit to 380,000 yen.

Better Deal

The country may halt sales of government-held shares to help protect financial markets, Finance Minister Shoichi Nakagawa said in a statement today. Japan will also take steps to tighten restrictions on short selling while relaxing regulations on share buybacks, he said.

Mitsubishi UFJ, the nation's largest listed bank, rose 14 percent to 810 yen. The company secured an additional $300 million in annual dividends for its $9 billion investment in Morgan Stanley after the U.S. securities firm's shares dropped.

Sony, which gets a quarter of its sales from the U.S., surged 17 percent to 2,785 yen. A 1 yen change against the dollar alters Sony's annual operating profit by 4 billion yen ($39 million), the company said in May.

Japan's currency dropped against the dollar as the U.S. Treasury's plan to acquire bank stakes encouraged investors to add to holdings of high-yielding assets funded in the Japanese currency. The yen weakened against the dollar to as much as 103.07 today from 99.16 at the close of stock trading in Tokyo on Oct. 10.

Futures Halted

``We are entering a turning point in the global credit turmoil,'' said Naoki Fujiwara, who oversees about $720 million as chief fund manager at Shinkin Asset Management Co. in Tokyo. ``Investors can consider reducing the portion of defensive shares and boosting their holdings in blue-chip stocks'' such as Sony.

Canon Inc., Japan's biggest office equipment maker, surged 16 percent to 3,600 yen. The company made 79 percent of its 2007 revenue outside of Japan. Mitsubishi Motors Corp., which generates about 80 percent of its sales in overseas markets, soared 26 percent to 140 yen.

Onward Holdings Co., an apparel maker, plunged by its daily limit of 11 percent to 826 yen, making it the worst performer on the MSCI World Index. The company cut its full-year net income forecast by 48 percent owing to slumping consumer spending.

Nikkei futures expiring in December added 21 percent to 9,680 in Osaka and gained 19 percent to 9,600 in Singapore. The Osaka Securities Exchange, Japan's main derivatives market, halted trading in Nikkei 225 Stock Average futures for 15 minutes until 9:25 a.m. after the share rally triggered circuit breakers.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.