Fresh optimism for Japan shares

A rising Nikkei could help the government in upcoming polls

Solid gains for Japanese stocks on Tuesday could prove good news for Prime Minister Junichiro Koizumi as he faces a general election this weekend.

Pollsters are predicting that Mr Koizumi's Liberal Democratic Party - in power for all but a handful of years in the past half-century - could face a tough challenge from the Democratic Party of Japan in Sunday's poll.

But much rides on perceptions of whether Japan's flagging economy is finally turning the corner.

And after fresh data indicated that the rapid third quarter growth of 7.2% in the US could be an understatement, record manufacturing figures in Japan sent key stocks soaring.

Manufacturing activity accelerated faster in October than for two years, a survey said, and shares such as motor giant Toyota, with earnings due out later this week, leapt.

By the close, the benchmark Nikkei 225 index was up 2.5%, following strong gains on Wall Street overnight.

At the same time, the US dollar - which had climbed sharply while a public holiday meant Japanese traders took a long - fell back.

Japanese companies took advantage of the dollar's rise to above 111 yen to swap foreign earnings for yen, bringing revenue back home.

But the greenback still closed well above Friday's level in Tokyo at 110.12 yen to the US dollar.