TOKYO, Apr 18 (Reuters) The Nikkei share average rose 1.37 percent on Tuesday as investors returned to recently battered financial stocks, while Nippon Mining Holdings Inc. and other resource-related shares rose on higher oil prices.
The yield on Japanese 10-year government bonds rose briefly to 2 percent for the first time since August 1999, but the stock market was unfazed due to expectations the Bank of Japan is not likely to raise interest rates immediately.
''Rising bond yields are not a problem. Rather the stock market sees it as a reflection of Japan's economic recovery,'' said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities Co.
The Nikkei gained 232.50 points to 17,232.86, logging its biggest one-day percentage gain since April 6. The Nikkei finished at its lowest close in more than two weeks on Monday.
The TOPIX index climbed 1.32 percent to 1,741.75.
Tatsuo Nishimura, a portfolio manager at Meiji Dresdner Asset Management, said hopes for strong earnings are lifting the market.
''High oil prices are certainly a burden for companies ... but the market looks quite buoyant. I think investors are scooping up stocks on expectations that corporate earnings numbers will be strong,'' he said.
The securities sector ISECU, which had underperformed the TOPIX index this month, rebounded with Nomura Holdings Inc. adding 2.9 percent to 2,665 yen.
Daiwa Securities Group. Inc. rose 4.9 percent to 1,577 yen after Nomura Securities raised its earnings estimates for Daiwa, Japan's second-biggest brokerage.
Energy stocks advanced after U.S. oil futures cleared a barrel on Monday, nearly breaching an all-time high set in the days following Hurricane Katrina.
Higher oil prices -- which boost corporate costs and crimp consumer spending -- are a minus for most firms, but a boon for energy-related companies.
Shares in Nippon Mining Holdings, which owns Japan's fifth-largest oil refiner, rose 5.8 percent to 1,119 yen while Nippon Oil Corp., Japan's largest oil distributor, gained 1.7 percent to 942 yen.
Bank shares rang up gains after Lehman Brothers upped ratings and target prices for major banking groups.
Mitsubishi UFJ Financial Group Inc. (MUFG) added 1.7 percent to 1.85 million yen after Lehman raised its rating on the world's largest bank by assets to ''overweight'' from ''equal weight''.
Lehman also raised its target price for Mizuho Financial Group to 1.2 million yen from 1.1 million yen, helping to boost the stock 2.9 percent to 1 million yen.
Trading volume was higher, with 1.59 billion shares changing hands on the Tokyo exchange's first section, although that was still well below last year's daily average of 2.07 billion shares.
Advancers swept past decliners by a ratio of nearly 5 to 1.
REUTERS PV GC1230