Nikkei jumps 3.4 percent as banks soar on U.S. bailout

By Taiga Uranaka

TOKYO (Reuters) - The Nikkei average jumped 3.4 percent on Monday, posting its biggest gain in five months, with financial shares soaring on the U.S. government's bailout of mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac

(FRE.N).

Top lenders such as Mitsubishi UFJ Financial Group (8306.T) and No.2 Mizuho Financial Group (8411.T) made double-digit gains and a dozen other financial shares topped the list of gainers on the Nikkei.

Sharp gains were seen across a broad range of shares, including exporters like Toyota Motor Corp (7203.T), helping the Nikkei erase steep losses made on Friday.

"The trend has changed and frankly, this has saved Japanese banks," said Kenichi Hirano, operating officer at Tachibana Securities.

"While they have less exposure to subprime loans (than U.S. and European rivals), they were facing the possibility of these agencies' bonds being written down," he said.

The takeover of the U.S. finance companies is the latest move by Washington to shore up the slumping housing market and was taken to ward off more global financial market turbulence.

The benchmark Nikkei average .N225 ended up 412.23 points at 12,624.46, the biggest percentage gain since a 4.2 percent advance logged on April 2.

The broader Topix rose 3.9 percent to 1,216.41.

But many market participants remained cautious about the market outlook, saying that problems remained.

"The bleeding on the U.S. front has been stemmed, but it does not mean the overall (global) economy will turn upward," said Masanobu Takahashi, chief strategist at Ichiyoshi Securities.

"We cannot expect that unless governments take up measures that would impact their economies."

Adding to an increasingly bleak macroeconomic picture, a government survey showed on Monday Japan's service sector sentiment fell to a fresh seven-year low in August, underscoring weakness in personal consumption.

BANKS SOAR

Mitsubishi UFJ soared 13.3 percent or by its daily limit of 100 yen to 850 yen, posting its biggest percentage gain in nearly five years.  Continued...