Japanese shares closed on Monday at their highest level for more than two years, pushed higher by the rally in Wall Street on Friday.

The benchmark Nikkei average closed up 2.5% at 19,437, its highest close since 8 August, 1997.

UK shares jumped in early trade, following news of the Glaxo SmithKline merger.

The deal creates the world's largest drugs group, and the UK's biggest company, valued at £130bn.

The FTSE 100 index initially rose 25 points to 6,683.2, although it later fell back.

On Friday, shares in America surged to a record high at the end of a volatile week.

The Dow Jones hit its third record of the week, after a raft of positive economic and corporate news.

The index surged 140.55 points, or 1.21%, to close at 11,722.98.

The rally in Wall Street on Friday was inspired by consumer price data, which showed little sign of inflation.

This eased expectations that the US central bank, the Federal Reserve, will increase interest rates by a half-point - from 5.5% to 6.0% - at its next meeting on 1 and 2 February.

Many traders now expect that the Federal Reserve will raise rates by a quarter-point to 5.75% - the same as UK base rate.

Market watchers said they were impressed that Federal Reserve chairman Alan Greenspan had indicated he would not let inflation get in the way of a surging US economy.

One said: "Greenspan has demonstrated that he understands the world has changed and that he doesn't intend to do anything scary to the market."