Japan's Nikkei average hit a five-week closing high on Thursday, soaring past its 75-day moving average as the euro climbed on news that the International Monetary Fund is seeking to bolster its funds to stem the euro zone sovereign debt crisis.
Major exporters recouped some of their recent losses as the euro climbed against the dollar and the yen.
TDK Corp (6762.T) jumped 4.6 percent, while Konica Minolta Holdings Inc (4902.T) advanced 1.5 percent and Canon Inc (7751.T) added 0.9 percent.
Sources, present at an IMF board meeting on the issue on Tuesday, said it was seeking to raise up to $600 billion to meet potential financing needs but the plan faces roadblocks from the United States and other countries.
Market participants said, however, that the bounce was more likely than not to be short-lived as the IMF's plans lacked details.
So really, we can see the euro's move as temporary and the strength of the yen will continue to weigh on the market, said Yutaka Miura, senior technical analyst at Mizuho Securities.
The benchmark Nikkei .N225 rose 1.1 percent to 8,639.68 and rose above its 75-day moving average near 8,569, while the broader Topix .TOPX advanced 0.8 percent to 740.68.
Japan's securities and megabanks outperformed the broader market and ranked among the biggest gainers in Tokyo, helped by better-than-expected results from Goldman Sachs (GS.N).
Nomura Holdings (8604.T), Japan's top brokerage, climbed 4.3 percent to its highest close in 10 weeks and ranked as the top percentage gainer on the Topix Core 30 .TOPXC index of blue-chip firms.
Sumitomo Mitsui Financial Group (8316.T) gained 2.4 percent, Mizuho Financial Group (8411.T) added 1.9 percent and Mitsubishi UFJ Financial Group (8306.T) rose 1.5 percent.
Trading volume ticked down from the previous session, with 2.13 billion shares changing hands on the main board, down from 2.36 billion shares on Wednesday.
CHIP-RELATED STOCKS JUMP
Market participants said prospects for Europe will become clearer at the Group of 20 deputy officials' meeting this week in Mexico.
Later on Thursday, Spain and France will also test investor appetite with debt auctions, while Bank of America (BAC.N), Morgan Stanley (MS.N), Google (GOOG.O), Microsoft Corp (MSFT.O) and Intel Corp (INTC.O) announce quarterly earnings later in the day.
The Nikkei has risen 2.2 percent so far this month, compared with an average gain of 1.4 percent for the month of January between 1972 and 2011.
Sharp gainers on Thursday included recently battered semiconductor-related shares, following a 5 percent overnight rally in the U.S. semiconductor index .SOX.
Advantest Corp (6857.T) jumped 7 percent, Tokyo Electron Ltd (8035.T) gained 3 percent, and Sumco Corp (3436.T) rallied 9.4 percent.
Investors also continued to buy small-cap construction firms, betting they would benefit most from Japan's reconstruction spending after last March's earthquake and tsunami. The construction sector .ICNST.T added 0.2 percent, taking its gains for so far this year to 6.7 percent.
Investors continue to buy stocks of construction companies and other reconstruction related firms priced below 100 yen per share that are not held by institutional investors or Japanese life insurers, said Seiki Orimi, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
But I do believe there is a high risk in buying these stocks because material and labor costs are high and these smaller construction companies are not assured of strong profits just because they win a contract.