The Japanese stock market was trading sharply higher on Tuesday following the overnight surge on Wall Street.

In early morning trades, the benchmark Nikkei 225 Index was gaining 189.12 points, or 2.3%, to 8,404.65 and the broader Topix Index of all First Section Issues was advancing 16.61 points to 808.17.

Overnight, U.S. stocks closed sharply higher following the announcement of the Obama administration's plan to purchase up to 1 trillion worth of toxic assets from banks as well as on a better-than-expected existing home sales report.

Crude oil prices surged higher on Monday as the Obama administration's latest plan to help struggling banks boosted the markets and improved the prospects for energy demand. Light sweet crude for May delivery rallied to close at $53.80 per barrel on the New York Mercantile Exchange, up $1.73 for the session.

The Japanese stock market closed higher on Monday on expectations of stimulus package from the government to revive the domestic economy. Trading houses and financial stocks closed sharply higher. The Nikkei 225 index ended higher by 269 points, or 3.4%, at 8,215 and the Topix Index gained 26.79 points, or 3.5%, to close at 792.

On the economic front on Tuesday, minutes from the Bank of Japan's monetary policy meeting held on February 18 and 19 revealed that board members suggested that the Japanese economy may begin to recover from the current recession in the second half of this year at the earliest. At the meeting, the board voted unanimously to keep the overnight call rate unchanged at 0.10%. The board also decided to expand special funds-supplying operations in order to facilitate a fall in longer-term interest rates that are actually applicable to fund-raising by firms and relieve them from funding concerns.

In the currency market, the U.S. dollar was trading in the lower 97 yen-range on Tuesday, buoyed by the announcement of the U.S. toxic asset plan. In early morning trades, the dollar was quoted in a range of 97.04-97.06 yen, up 1.07 yen from Monday's close in Tokyo.

Banking stocks were trading sharply higher on hopes for stabilization of the U.S. financial system following the Obama administration's new plan. Mitsubishi UFJ, Japan's biggest bank, is up almost 5%, Sumitomo Mitsui is rising 3% and Mizuho Financial is gaining 4%. Resona Holdings is adding almost 1%. Brokerage Nomura Holdings is up about 2%.

Exporters were gaining on the back of a weaker yen. Canon is adding almost 4%, while Sharp is up 2% and Sony is gaining more than 3%. Automaker Toyota is gaining almost 3% and Honda is up more than 2%.

Oil-related stocks are trading higher following the overnight rise in crude oil price. Inpex and Showa Shell are adding more than 1% each, while Nippon Oil is up more than 3%. Trading house Mitsubishi Corp. is up more than 5%, while Itochu is gaining 6% and Sumitomo Corp. is rising 4%.

Shares of Nippon Steel are up more than 4% following reports that the company and other Japanese steelmakers sealed a year-on-year discount of around 57% on coking coal contracts with BHP Billiton for fiscal year 2009.

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