Banks lead a Tokyo new year rally

JAPANESE investors bounded back into the markets after the long weekend, convinced that growing international pressure will force their government to take swift action to tackle the looming economic crisis.

With most Asian markets still closed for Lunar New Year holidays, attention centred on Tokyo, where bank stocks led a rally of nearly 2%. Sydney's market failed to hold on to early record highs inspired by strong performances on Wall Street.

Electronics stocks in Japan also powered ahead on hopes that a two-year low in US inventories indicates that demand for computer components may soon be revived by restocking. The Nikkei 225 responded with its third consecutive session gain, up by 191.93 points to 9877.99.

Belief that Japan will finally face reality was bolstered after Japanese ministers attending the Group of Seven meeting in Ottawa at the weekend outlined a blueprint for action that included a major injection of funds into the banking system, and a scheme to buy up stocks from the banks' decimated equity portfolios.

The plan was to be discussed by the government's Council on Economic and Fiscal Policy today, but there were signs of opposition from ministers opposed to the use of public funds to prop up the banks.

Japan's pressing economic problems and the growing risk to the rest of the world of a collapsing financial system are expected to dominate conversations between President George Bush and Prime Minister Junichiro Koizumi next weekend. While some politicians want to unveil firm proposals for economic stimulus ahead of President Bush's visit, which starts on 17 February, others are wary of another State bail-out of the busted banks.

After unconfirmed weekend reports that the government was prepared to pump 10 trillion yen (£53bn) into the banks, Financial Services Minister Hakuo Yanagisawa told reporters that the use of public funds would be against free market principles and could also risk an illegal back-door nationalisation.

The objections did little to stem the surge in bank shares, led by Mizuho Holdings, the world's biggest bank, which jumped almost 3%, taking it up to 25% above recent lows. In the consumer electronics sector, Canon led the rally with a 3.4% charge, while Sony was close behind, up 2.8%. Fujitsu, massacred last month following grim earnings figures, was an overnight star, soaring 6% on news of a planned link-up with consultants Accenture.

Shares in brewing giant Kirin were lifted 4% on reports that it planned to produce beer in China and Australia.

Brewing was also big news in Sydney, where Foster's Group soared almost 4% after the company unveiled a 21% increase in profits, helped by strong returns from its US interests. Some of the froth was blown off the rest of the stock market by profit-taking in gold shares and News Corporation, which brought prices back from record highs in early trading. After breasting the previous summit of 3425 of 29 June last year, the All Ordinaries index dipped back to 3423.1 for a net gain of 4.3.

Thailand's SET index dipped 0.6 points to 356.88. Markets in Hong Kong, Taiwan, China, Korea, Singapore, Malaysia and Indonesia are closed for the Lunar New Year.

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