Shares of Japan Airlines Corp <9205.T> jumped 36 percent to bounce back from a plunge last week after the government sought to boost the amount of funds available to the struggling carrier.
The stock lost a quarter of its value on Wednesday, the last trading day of 2009, after sources said a government-backed turnaround fund told JAL's main creditors it was leaning toward a bankruptcy proceeding as part of a rescue package for Asia's largest carrier by revenue.
The state-owned Development Bank of Japan (DBJ) said on Sunday the government had asked it to double its credit line for JAL to 200 billion yen ($2.2 billion) to provide it with funding while a state-backed turnaround fund decides whether to bail out the airline.
A spokesman for the bank said it was considering the government's request.
The move appears to have erased worries about JAL's immediate credit concerns, said Takashi Kishi, senior analyst at Mizuho Investors Securities.
But JAL's stock has already become a money game. I think it will rise and fall sharply in response to government moves and media reports until the ETIC makes a decision, he added.
JAL, hit by a global downturn in travel and a bloated cost base, has been seeking a bailout from the state-backed Enterprise Turnaround Initiative Corp of Japan (ETIC), which is expected to make a decision on whether to support the airline this month.
A bankruptcy could wipe out the value of JAL's shares and trigger greater losses for creditors, which include the DBJ and the country's three largest private banks.
The president of JAL Haruka Ninishmatsu said he is against a bankruptcy proceeding under a state restructuring plan, the Asahi newspaper reported on Sunday.
The Asahi also said quoted Nishimatsu as saying he was eyeing an alliance with Delta Air Lines and the SkyTeam airline group, ending current ties with AMR Corp's American Airlines and the Oneworld alliance.
JAL spokesman Taro Namba said the company can not confirm the president's remarks, adding that nothing has been decided.
The two U.S. carriers have made rival offers of financial aid, keen to gain a greater foothold in Japan and access to JAL's network to the rest of Asia.
Separately, the Yomiuri newspaper reported last week that Japan's All Nippon Airways <9202.T> was considering taking over the international routes of JAL.
An ANA spokesman denied the report.
JAL's stock jumped to 91 yen, while ANA climbed 4 percent to 262 yen, outperforming a 1.3 percent climb for the Nikkei average <.N225>.
(Reporting by Nathan Layne and Nobuhiro Kubo; Editing by Edwina Gibbs)