Nikkei surges nearly 14 percent, may see record gain

TOKYO (Reuters) - The NIKKEI (NIKKEI225.)average soared almost 14 percent on Tuesday and was set for the biggest one-day gain in its nearly 60-year history after governments around the world pledged to support struggling banks and restore confidence in the financial system.

But even that dramatic jump clawed back only about half the losses incurred last week, when the Nikkei lost 24 percent. On Friday alone, it plunged 9.6 percent for its biggest drop since the 1987 stock market crash.

Mitsubishi UFJ Financial Group shares surged more than 14 percent to their daily limit-high after Japan's top bank delivered on a planned $9 billion investment in U.S. firm Morgan Stanley

"It's not surprising that we have a technical rebound along with the European, the U.S. and Asian markets after Friday's global selling-climax," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, adding the jump is mainly due to short-covering rather than the inflow of new money.

"There's a relief that banks probably wouldn't go bankrupt thanks to money injection plans, but after some rebound, we will inevitably enter a phase to think about how that would actually impact the global economy."

As of 12:15 a.m. EDT, the benchmark Nikkei surged 1,127.11 points to 9,403.54, a 13.62 percent climb that would put it ahead of a record 13.24 percent jump logged on October 2 1990.

The broader Topix gained 13 percent to 950.07.

A U.S. Treasury plan is expected to inject $125 billion of capital into the top nine U.S. banks as part of a larger voluntary $250 billion capital infusion, according to a source briefed on the matter

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. Japan also unveiled steps to stabilize 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. But market participants remained wary, noting that rises above 9,600 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.

M'BISHI UFJ, BANKS RALLY

Mitsubishi UFJ Financial Group shares traded at their daily limit-high of 810 yen, a gain of 14.1 percent.

Completion of the deal sent Morgan Stanley soaring and helped power a rally in financial shares on Wall Street that spilled over into Tokyo.

Sumitomo Mitsui Financial Group, the country's third-largest lender, jumped 16.1 percent to 641,000 yen and Japan's banking index IBNKS.rose 14.5 percent.

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

Toyota Motor rose 14 percent to 3,670 yen, Honda Motor gained 17.1 percent to 2,470 yen and Nissan Motor jumped 16.2 percent to 539 yen.

Mazda Motor jumped 10.4 percent to 318 yen after Reuters and other media reported loss-laden Ford Motor was considering cutting its 33 percent stake in the Japanese carmaker by 20 percentage points to generate cash.

Canon climbed 15.8 percent to 3,590 yen.

(Additional reporting by Elaine Lies; editing by Sophie Hardach)