Tokyo, Jan 18: The Nikkei average rose 0.63 percent to its highest close in nine months on Thursday

Tokyo, Jan 18: The Nikkei average rose 0.63 percent to its highest close in nine months on Thursday after the Bank of Japan kept interest rates unchanged as expected, with drug makers gained on news that Tanabe Seiyaku Co. Ltd. is considering merging with a rival.

Some market participants locked in profits after the central bank's decision, but others shrugged off the news and turned their attention to quarterly corporate earnings reports.

''As the market has been factoring in a lack of change in the BOJ policy, its reaction to the news was calm,'' said Takahiko Murai, a general manager of equities at Nozomi Securities.

The benchmark Nikkei average was up 109.58 points at 17,370.93, its highest close since April 21.

The broader TOPIX index rose 0.49 percent to 1,715.17, its highest close since last May.

The BOJ voted by 6-3 to keep policy unchanged. It was the board's closest on a key monetary policy decision in more than three years.

The economy has been making an extended recovery but worries remain given soft price pressures and moderate growth in consumption. One senior member of the ruling party had said earlier this week that the government should formally request a delay in any BOJ vote on raising rates.

Yutaka Shiraki, senior equity strategist at Mitsubishi UFJ Securities, said the BOJ decision was positive for the stock market in the short-term. But if the central bank holds off from a rate rise for much longer due to caution about the economy, that may not be supportive for the market, he added.

''Although the BOJ refrained from raising rates this time, they will likely do so at the next meeting or after,'' he said.

Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, said if financial market participants take the BOJ decision as a sign it yielded to political pressure, they may sell not only the yen but also yen-based financial assets.

''For us, the best scenario is that the BOJ will raise interest rates at its policy meeting in February,'' he added.

Drug Makers Rally

Drug stocks advanced on consolidation hopes after Tanabe Seiyaku Co. Ltd. said it was in merger talks with Mitsubishi Pharma Corp., the drug unit of Mitsubishi Chemical Holdings Corp.

Tanabe Seiyaku rose 5.4 percent to 1,716 yen, while Mitsubishi Chemical jumped 5.6 percent to 815 yen.

The Nikkei newspaper reported earlier that Mitsubishi Chemical would take a stake of more than 50 percent in the new firm, which would become Japan's sixth-biggest drug maker.

Expectations of a further shakeup in the industry helped other drug shares, with Eisai Co. Ltd. up 3.8 percent at 6,620 yen and Ono Pharmaceuticals Co. gaining 3.9 percent to 6,190 yen.

Shares in Fast Retailing Co. rose 0.4 percent to 9,630 yen after a newspaper reported on Thursday that the operator of the Uniqlo clothing chain would consider a 400 billion yen ($3.3 billion) acquisition.

Fast Retailing said in September 2005 that it planned to spend 300-400 billion yen on acquisitions in three years, aiming to nearly double its group sales to 1 trillion yen in 2009/10 from a projected 532.5 billion yen in the year to August 2007.

Shares in Rakuten Inc. jumped 8.7 percent to 62,600 yen after a newspaper reported on Thursday that Tokyo Broadcasting System Inc. may launch a tender offer to buy Rakuten's 19 percent stake in the TV broadcaster.

The Nikkei Financial Daily reported earlier that Rakuten, Japan's biggest online shopping mall, would gain a special profit of over 30 billion yen if TBS bought back its shares from Rakuten through a tender offer.

But investors sold technology stocks, tracking a drop in similar U.S. stocks after disappointing financial results from Intel Corp.

Reuters