Dec. 20 (Bloomberg) -- Japanese stocks gained, with the Nikkei 225 Stock Average climbing to the highest since May, after the yen traded at a five-week low versus the dollar and at its weakest ever against the euro, boosting the value of exporters' sales.

Toyota Motor Corp. and Honda Motor Co. paced the advance.

``The only thing showing a stable trend recently is the currency and that's supporting gains in exporter shares today,'' said Tomokatsu Mori, who helps oversee $7.4 billion at Fukoku Capital Management Inc. in Tokyo. ``Auto-related companies especially those of the Toyota group, are attractive for their solid earnings.''

The Nikkei added 234.16, or 1.4 percent, to 17,011.04, the highest close since May 9. The broader Topix index advanced 21.61, or 1.3 percent, to 1667.01. All 33 industry groups included in the broad measure rose.

Nippon Steel Corp. led makers of the alloy higher after a report showed Japan's crude steel output in November had the largest percentage gain this year on demand from manufacturers and constructors.

Toyota, the world's second-largest automaker, advanced 100 yen, or 1.3 percent, to 7,550. The carmaker has predicted that it will earn more than any other Japanese company this business year. Toyota made almost half its sales in North America and Europe last business year.

Honda, Japan's No. 3 automaker which had 55 percent of its sales in North America, climbed 100 yen, or 2.3 percent, to 4,420.

The yen traded at a record low against the euro, falling to 156.30 yen per euro from yesterday's close at 155.86. The yen was recently at 118.18 per dollar, the lowest since Nov. 16.

A stronger dollar and euro means Japanese exporters get more for their overseas sales when they are converted back to yen while their products become more competitive.

Surging Steel Output

Japan's currency has lost 12 percent against the euro this year as investors bet the European Central Bank will raise rates at a faster pace than the Bank of Japan.

The BoJ left its key interest rate unchanged at 0.25 percent yesterday. The central back said in its monthly report yesterday that the economy is still growing, though sluggish wage growth is holding back consumer spending.

Nippon Steel, Asia's biggest maker of the alloy, jumped 24 yen, or 4.2 percent, to 598. It was the second-most actively traded stock by value with 88 billion yen ($745 million) in shares changing hands. JFE Holdings Inc., Japan's second biggest steelmaker, added 200 yen, or 3.5 percent, to 5,970.

Increasing Investment?

``The fundamentals for steelmakers are quite good as the auto industry, emerging countries and crude oil development projects all need steel,'' said Fukoku Capital's Mori. ``In addition, takeover speculation persists for the industry, making it difficult for us not to hold their shares.''

Crude steel production in Japan, the world's second-largest economy, increased for a sixth straight month in November.

Output rose 9.5 percent to 10.01 million metric tons last month, the Japan Iron & Steel Federation said yesterday. Steelmakers such as Nippon Steel made more than 10 million tons of crude steel for a second straight month.

Global money managers who want to increase the weight of Japanese equities in their portfolios rose to 16 percent in Merrill Lynch & Co.'s December survey, from 6 percent last month. Investors who would like to hold Japanese stocks the most ``overweight,'' compared with other nation's shares, during the next year more than doubled to 12 percent from 5 percent. That was the highest among major markets included in the Merrill survey.

Kirin Earnings

Kirin Brewery Co., Japan's biggest beverage maker, advanced 71 yen, or 4 percent, to 1,831. The company said it expects to generate at least 150 billion yen in operating profit for the year ending in December 2009, an increase of 28 percent from this year's profit that Kirin forecast in its midterm release.

Japan Tobacco Inc., the world's third-largest publicly traded cigarette maker, rose 32,000 yen, or 6 percent to 566,000 as investors judged recent losses excessive. The stock plunged 11 percent in the past two days after Japan Tobacco disclosed the company will spend $14.7 billion to buy Gallaher Group Plc.

Fitch Ratings said yesterday the partly debt-funded acquisition will ``cause deterioration in its existing excellent financial profile.''

Nikko Cordial Drops

Nikko Cordial Corp., Japan's third-largest brokerage, fell 64 yen, or 5.3 percent to 1,155, extending its loss to 22 percent this week. The nation's securities watchdog recommended on Dec. 18 the company be fined a record 500 million yen for falsifying earnings.

Misawa Homes Holdings Co. surged 290 yen, or 11 percent to 3,030. Yoshihito Oshima, an analyst at Lehman Brothers Japan Inc., said in a report dated yesterday that Misawa, Japan's fifth-biggest publicly traded home builder, is a good buy if there aren't any additional major setbacks for consolidated numbers. Oshima left the rating unchanged to `overweight.'

Misawa Homes Kyushu Co., a company subsidiary, booked home sales before transactions were completed, Misawa Homes said on Dec. 18. The parent company cut its profit by 300 million yen to 124 billion yen for the year ended March, 2006, because of the accounting irregularities. The stock fell 16 percent after the announcement to yesterday's close.

Nikkei futures expiring in March rose 1.1 percent to 17,000 in Osaka and rose 1.1 percent to 16,990 in Singapore.

Honda Motor Co. (7267 JT)
JFE Holdings Inc. (5411 JT)
Japan Tobacco Inc. (2914 JT)
Kirin Brewery Co. (2503 JT)
Misawa Homes Holdings Co. (1722 JT)
Nikko Cordial Corp. (8603 JT)
Nippon Steel Corp. (5401 JT)
Toyota Motor Corp. (7203 JT)

To contact the reporter on this story: Kanoko Matsuyama in Tokyo at at kmatsuyama2@bloomberg.netMakiko Suzuki in Tokyo at msuzuki13@bloomberg.net.

Last Updated: December 20, 2006 01:37 EST