Tokyo: The Nikkei stock average gained 1.5 per cent, climbing above a recent resistance level, as coordinated action from central banks calmed fears that Europe's financial sector was headed for a credit freeze due to the region's sovereign debt crisis.
Financials outperformed, lifting the Nikkei above 8,732, the settlement price for September Nikkei futures and options.
But analysts said that gains may be trimmed in afternoon trade before a three-day weekend in Japan and amid persistent worries that Greece may default.
"With today's rise, it is like we are cautiously climbing up a wall but at the same time we're thinking that the wall may collapse if we go up any further," said Kenichi Hirano, a strategist at Tachibana Securities.
"There's been no let-up in European debt fears." Major central banks around the world said they will cooperate to offer three-month US dollar loans to commercial banks in order to prevent money markets from freezing up amid the European debt crisis.
The market's focus is now on Friday and Saturday's meeting of euro zone finance ministers which will also be attended by US Treasury Secretary Timothy Geithner.
Geithner will discuss with European finance ministers the possibility of leveraging the euro zone's bailout fund to make it more effective in fighting the region's debt crisis.
The Nikkei rose 1.5 per cent to 8,799.55, its second day of gains and moving further away from a 2-1/2 year closing low hit on Wednesday.
Analysts said resistance is now seen at its 25-day moving average at 8,802. The broader Topix index added 1.3 per cent to 761.76.
Nomura Holdings rose 3.1 per cent to 301 yen and Daiwa Securities added 2.4 per cent to 302 yen. Mitsubishi UFJ Financial Group gained 3.3 per cent to 341 yen.
Olympus climbed 4.4 per cent to 2,164 yen, after Citigroup Global Markets Japan started coverage of the issue with a "buy" rating and a target price of 2,800 yen, citing the mid-term potential of the optical equipment maker's endoscope business.
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