Tokyo, Feb 21: Japan's broadest stock index rose 0.25 percent to its highest close in more than 15

Tokyo, Feb 21: Japan's broadest stock index rose 0.25 percent to its highest close in more than 15 years on Wednesday as banks including Mizuho Financial Group Inc. advanced after the Bank of Japan raised interest rates.

Steel shares extended gains following Tokyo Steel Manufacturing Co. Ltd.'s announcement of a price increase. But Honda Motor Co.

Ltd. fell after it said a state-backed body would sell its holdings in a secondary offering, helping push the Nikkei average down 0.14 percent by the close.

''The rise in the TOPIX index to a 15-year high indicates that the Japanese economy is finally getting out of deflation,'' said Yasuo Yabe, director of sales at Meiwa Securities.

''The market is expected to continue a bull run, as foreign investors have been buying Japanese stocks on hopes for good corporate earnings and Japan's economic recovery.'' The TOPIX index added 4.50 points to 1,787.23, the highest close since November 1991. The Nikkei was down 25.91 points at 17,913.21.

The Tokyo market saw active trade with 3.1 billion shares changing hands on the Tokyo exchange's first section, the highest volume since June 9, 2006. Advancing shares beat decliners 948 to 615.

Yoshihisa Okamoto, senior vice president at Fuji Investment Management, said now interest rates had been raised, eliminating an uncertain factor from the market, investors will likely shift their attention to corporate earnings.

''Shares of banks and regional banks will draw buyers and the key will be how buying will spread,'' he said.

Credit Suisse said in a report on Wednesday that the rate hike will have a limited impact on the equity market, and it maintained its TOPIX target for 2007 at 2,000.

''A one-off 25 basis point rate hike will have only a limited impact on the economy and corporate earnings,'' the brokerage firm said. ''If a consensus formed that changes in monetary policy will remain measured going forward, we believe the shift in household financial assets towards risk assets will continue.'' BANKS, STEEL SHARES ADVANCE Mizuho Financial rose 1 percent to 883,000 yen and Mitsubishi UFJ Financial Group Inc. added 0.7 percent to 1.51 million yen on views that rising interest rates would improve their lending margins.

Expectations for solid profit prospects also helped steel shares to extend gains.

Tokyo Steel surged 10 percent to 2,110 yen after it announced another round of price hikes to reflect strong demand. The move helped other steel stocks, with Kobe Steel Ltd. adding 2.2 percent to 470 yen. Nippon Steel Corp. climbed 2.6 percent to 805 yen, a level last seen in December 1989.

Property stocks reversed earlier losses and ended higher as the rate hike was seen as proof of a solid economic recovery. Japan's largest property firm Mitsui Fudosan Co. Ltd. ended up 1.8 percent.

Meanwhile, Honda fell 1.3 percent on a state-backed body's plan to sell about $1.5 billion worth of its shares, raising worries about an increase in the supply of stock that could potentially be sold on the market.

REUTERS