The Nikkei stock average snapped a four-day losing streak on Thursday, helped by a short-covering on a rally in commodities and hopes that Europe's policymakers would take steps to shore up the region's banking system.
Investors cut bearish bets on beaten-down stocks rather than bargain hunting, analysts said, after broad-based selling the previous day had taken Japan's benchmark stock index close to the lows hit following the March earthquake.
Mildly positive jobs data from the U.S. overnight raised hopes that the country would avert another recession and market players were taking precautions to avoid getting caught on the wrong side if payrolls figures on Friday surprise on the upside.
The ADP data wasn't bad, which raised expectations that Friday's report might not be so bad, and investors are buying back shares ahead of the data, said Hiroaki Osakabe, a fund manager at Chibagin Asset Management Co.
A European Central Bank policy meeting later in the day at which the ECB is expected to boost liquidity to banks, is also expected to set the tone for markets.
The Nikkei finance/markets/index?symbol=jp%21n225>.N225 closed up 1.7 percent at 8,522.02. The broader Topix .TOPX added 1.5 percent to 736.86, after falling below its post-quake low of 725.90 on Wednesday. Volumes fell, suggesting investors remained wary.
Sony Corp (6758.T), which fell to a 25-year low earlier this week, rose 4.7 percent to 1,470 yen after a report that it had secured financing from Abu Dhabi's investment fund for its bid for British music company EMI. [ID:nL3E7L608X]
Other large-caps, particularly exporters trading near multiyear lows, saw a relief rally with industrial robot maker Fanuc (6954.T) up 4 percent at 10,530 yen and providing the biggest boost to the Nikkei.
But there were few arguments in support of a sustained bounce for Japanese stocks.
This is a short-covering rally, as investors buy back stocks that were oversold, and it was not led by any buying on fundamental hopes that stocks will rise, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co.
HSBC's head of global equity strategy Garry Evans wrote in a report that while Japan may have benefitted from the recent spike in risk aversion which saw a sharper sell off in emerging markets, its long-term outlook remained uninspiring.
An analysis of fund holdings by HSBC showed large institutions were still the most overweight they have been on Japan in the last six years leaving the market vulnerable to further selling pressure.
The tech sector was in focus on news that Microsoft Corp was mulling another bid for Yahoo Inc according to sources close to the situation.
Yahoo Japan (4689.T), which is 35 percent held by Yahoo Inc, gained 2.2 percent.
News of the death of Apple Inc co-founder and former CEO Steve Jobs dominated headlines and generated an outpouring of tributes from political, business and technology leaders.
The news had little impact on markets, however, which reacted more to the rebound in risky assets that gave a boost to cyclicals.
Trading companies benefited from gains in crude futures and metals prices, with Mitsubishi Corp (8058.T) up 2.7 percent at 1,434 yen and Mitsui & Co (8031.T) up 2.2 percent at 1,049 yen.
Aeon Co (8267.T), Japan's second-biggest retailer, jumped 5.1 percent to 1,079 yen after it raised its full-year outlook.
Shares of GS Yuasa (6674.T) jumped 7 percent to 352 yen after the company said it planned to boost production capacity at its automotive lithium battery joint venture to meet booming orders. Its shares posted their biggest single-day rise since February 2010 after hitting a 34-month low in the previous session.
Volume fell to 1.63 billion shares changing hands on the Tokyo Stock exchange's main board, compared with full-day volume of 2.06 billion on Wednesday.