The Japanese stock market was trading higher on Thursday following the overnight gains on Wall Street, as better-than-expected U.S. economic data sparked optimism about the world's largest economy.

In early morning trades, the benchmark Nikkei 225 Index was gaining 196.6 points or 2.35% to 8,548.51 and the broader Topix index of all First Section Issues was adding 16.91 points to 810.73.

Overnight, U.S. stocks closed higher in the first trading session of the second quarter on better-than-expected reports on pending home sales, construction spending, and manufacturing activity. Investors shrugged off disappointing private sector employment data as well as massive declines in monthly sales for March reported by the Big Three automakers, although the sales signaled an improvement from February.

Crude oil prices dropped on Wednesday as Energy Information Administration data revealed a build in both crude oil and gasoline stockpiles. Light sweet crude for May delivery closed at $48.39 on the New York Mercantile Exchange, down $1.27 on the session.

The Japanese market closed higher on Wednesday, led by positive cues from Wall Street. The weakening of the yen against the U.S. dollar also lifted sentiment, offsetting the weak economic data released by the Tankan Survey. The Nikkei 225 Index gained 242.38 points or 2.99% to close at 8,532, and the Topix Index rose 20.16 points to 794.

On the economic front, the Bank of Japan said Thursday that the monetary base in Japan was up 6.9% on year in March, standing at 94.46 trillion yen. That's up from 93.65 trillion yen in February, which saw a 6.4% annual increase. Seasonally adjusted, the monetary base was up 5.6% on month at 94.3 trillion yen. Through the first three months of 2009, the monetary base was up an annual 5.7% and a seasonally adjusted 17.2% compared to the previous quarter

The Ministry of Finance said that Japanese investors bought a net 663.1 billion yen in foreign bonds and also purchased a net 246.4 billion yen in foreign stocks for the week ending March 28. Meanwhile, foreigners sold a net 189.7 billion yen in Japanese stocks and also sold a net 719.8 billion yen in foreign bonds.

In the currency market, the U.S. dollar was trading in the mid 98 yen-range on Thursday. In early morning trades, the dollar was quoted in a range of 98.53-98.56 yen, down 0.07 yen from Wednesday's close.

In the banking sector, Mitsubishi UFJ, Japan's biggest bank, is gaining 4.65%, Mizuho Financial is advancing 4.19%, Sumitomo Mitsui is rising 3.70% and Resona Holdings is adding 2.23%. Brokerage Nomura Holdings is up 5.28%.

Exporters are also trading higher on hopes of a revival in the U.S. economy. Canon is advancing 1.21%, Sony is surging 5.41% and Sharp is adding 0.88%. Among automakers, Toyota is gaining 4.89% and Honda is rising 5.26%.

U.S. auto sales continued sliding in March, but the automakers pointed to a sales rebound in the last week of the month, driven by incentives that seek to revive volumes nearing 25-year lows. Toyota said it saw signs of optimism in U.S. sales trends even as its March sales fell 39%.

In the oil sector, Inpex is easing 0.14%, Nippon Oil is losing 1.77% and Showa Shell is down 2.04% following the overnight decline in crude oil price. However, trading house Mitsubishi Corp. is rising 3.01%, Sumitomo Corp. is gaining 3.46% and Itochu is up 4.65%.

Shares of chip maker Elpida Memory are climbing 12.8%. The Nikkei business daily reported that Elpida is considering letting Taiwan Memory Co., the memory chip manufacturer being established by the Taiwanese government, buy a roughly 10% stake in it.

Toshiba announced Wednesday its intention to convert Toshiba Matsushita Display Technology Co., the LCD manufacturing joint venture formed by Toshiba and Panasonic, into a wholly owned subsidiary. On April 28, Toshiba will purchase Panasonic's 40% stake in TMD for some 2 billion yen, increasing its own interest to 99.9%. Shares of Toshiba are currently gaining 3.35%, while Panasonic is up 0.92%

Nippon Steel announced plans on Wednesday to furlough about 1,400 employees at five domestic mills for one or two days a month, starting April 2009, due to weak demand for automotive and construction materials. However, the company's shares are advancing 1.49%.

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