(Corrects 2nd paragraph to say 18 years, not 17)
By Elaine Lies
TOKYO (Reuters) - Japan's NIKKEI (NIKKEI225.)stock average soared 13 percent on Tuesday, taking heart from international government pledges to pour cash into struggling banks and restore confidence in the global financial system.
A 13 percent climb puts it a whisker away from making its biggest one-day gain in 18 years.
Canon Inc <7751.T> surged more than 15 percent and other blue-chip exporters saw similar advances, boosted by the dollar's rise against the yen.
"We're seeing both short-covering and a lot of fresh buys," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities, adding that he expected the Nikkei to rise further.
"Basically, the market fell too far last week. I'd say 9,600 isn't that difficult a short-term goal." 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.
The benchmark Nikkei <.N225> ended morning trade up 13.04 percent, a rise of 1,079.13 to 9,355.56 after rising 13.8 percent earlier.
That compares to the 13.24 percent leap logged on October 2, 1990, which was the benchmark's biggest one-day gain since 1945. The broader Topix <.TOPX> rose 12.7 percent, gaining 106.61 to 947.47.
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. 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 which were closed on Monday for a holiday.
BANKS, CARMAKERS
Mitsubishi UFJ Financial Group <8306.T> shares traded at their daily limit-high of 810 yen, a gain of 14.1 percent, after Japan's top bank delivered on a planned $9 billion investment in U.S. firm Morgan Stanley
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 <8316.T>, the country's third-largest lender, jumped 16.7 percent to 644,000 yen and Japan's banking index <.IBNKS.T> rose 14.5 percent.
Shares of carmakers outperformed the broader market as a softer yen and improved stock market sentiment sparked active buying of recently battered blue chips.
Toyota Motor <7203.T> rose 15.2 percent to 3,710 yen, Honda Motor <7267.T> gained 15.9 percent to 2,445 yen and Nissan Motor <7201.T> jumped 16 percent to 538 yen.
Mazda Motor <7261.T> jumped 11 percent to 320 yen after Reuters and other media reported loss-laden Ford Motor
Canon rose 15.8 percent to 3,590 yen, becoming the second-biggest contributor to the Nikkei 225. Sony Corp <6758.T> rose 16.8 percent.
Trade fell off slightly on the Tokyo Stock exchange's first section, with 1.13 billion shares changing hands compared to last week's morning average of 1.29.
Advancing stocks outpaced declining ones by 72 to 1.
(Additional reporting by Aiko Hayashi; Editing by Edwina Gibbs)
