Japan's Nikkei stock average soared 13 per cent on Tuesday, taking heart from international government pledges to pour cash into struggling banks and restore confidence in the global financial system.
A 13 per cent climb puts it a whisker away from making its biggest one-day gain in 17 years.
Canon Inc surged more than 15 per cent 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 stabilise 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 ended morning trade up 13.04 per cent, a rise of 1,079.13 to 9,355.56 after rising 13.8 per cent earlier.
That compares to the 13.24 per cent leap logged on Oct. 2, 1990, which was the benchmark's biggest one-day gain since 1945. The broader Topix rose 12.7 per cent, gaining 106.61 to 947.47.
A US Treasury plan is expected to inject $125 billion of capital into the top nine US banks as part of a larger voluntary $250 billion capital infusion, according to a source briefed on the matter.
The US 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 US 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.
Mitsubishi UFJ Financial Group shares traded at their daily limit-high of 810 yen, a gain of 14.1 per cent, after Japan's top bank delivered on a planned $9 billion investment in US firm Morgan Stanley.
Completion of the deal sent Morgan Stanley soaring and helped power a rally in financial shares on Wall Street that spilt over into Tokyo.
Sumitomo Mitsui Financial Group, the country's third-largest lender, jumped 16.7 per cent to 644,000 yen and Japan's banking index IBNKS.rose 14.5 per cent.
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 rose 15.2 per cent to 3,710 yen, Honda Motor gained 15.9 per cent to 2,445 yen and Nissan Motor jumped 16 per cent to 538 yen.
Mazda Motor jumped 11 per cent to 320 yen after Reuters and other media reported loss-laden Ford Motor was considering cutting its 33 per cent stake in the Japanese carmaker by 20 percentage points to generate cash.
Canon rose 15.8 per cent to 3,590 yen, becoming the second-biggest contributor to the Nikkei 225. Sony Corp 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.