ikkei surges over 7 pct on BOJ rate cut hopes, yen

TOKYO (Reuters) - Japan's Nikkei average rose 7.5 percent on Wednesday after the yen fell on hopes that the Bank of Japan will cut interest rates at a policy-setting meeting later this week, with exporters such as Sony Corp gaining.

The BOJ will consider cutting rates on this week, but the bank will watch market conditions before making a final decision, a source informed on the matter said.

The Nikkei business daily also reported earlier on Wednesday without citing sources that the central bank is leaning towards cutting its 0.5 percent target for the unsecured overnight call money rate to 0.25 percent.

"Hopes of a BOJ rate cut are everything," said Masayoshi Okamoto, head of trading at Jujiya Securities.

"But as long as the dollar is below 100 yen there will be worries about Japanese company earnings in the second half of this business year, and this will limit the Nikkei's rebound."





The yen posted its biggest daily fall against the U.S. currency since 1974 on the Nikkei report of a BOJ rate cut but later trimmed losses and was fetching around 97.70 yen .

Speculation over rate cuts by the BOJ and the Fed sparked a wave of bargain hunting in U.S. shares that helped Wall Street log its second-biggest one-day gain ever.

The benchmark Nikkei gained nearly 570 points to 8,190.56 although volume still appeared relatively thin after two days of heavy trade. On Tuesday it briefly touched a 26-year low before ending up more than 6 percent. The broader Topix was up 6.8 percent to 837.22. Sony climbed 4 percent to 2,075 yen and Canon Inc rose 7.8 percent to 2,750 yen.

Beaten-down Japanese banks also surged, with Mitsubishi UFJ Financial Group up 13 percent at 622 yen and Mizuho Financial Group up 9.3 percent at 234,900 yen