Nov. 30 (Bloomberg) -- Japanese stocks rose after Federal Reserve Chairman Ben S. Bernanke reinforced speculation that U.S. policymakers will cut borrowing costs, bolstering growth and making more funds available for investment.

JFE Holdings Inc. climbed the most since March after Credit Suisse Group boosted its rating on Japan's steel industry saying recent price drops have increased the shares' appeal. Mitsui O.S.K. Lines Ltd. rose after an index of freight prices continued a rebound from 10 days of declines.

Bernanke said volatility in credit markets has ``affected'' the economy's prospects, fueling expectations of a rate cut.

``The Fed is constructing their policy with the market in mind; I think we'll see a cut this time around,'' said Yasuhiro Kunii, who helps manage about $38 billion at Dai-Ichi Mutual Life Insurance Co. in Tokyo.

The Nikkei 225 Stock Average gained 166.93, or 1.1 percent, to 15,680.67 at the 3 p.m. close in Tokyo. The index dropped 6.3 percent in November, its biggest decline in 18 months. The Topix index rose 17.41, or 1.2 percent, to 1,531.88. The measure fell 5.4 percent this month.

Uncertainty around the outlook is ``even greater than usual,'' requiring the Fed to be ``exceptionally alert and flexible,'' Bernanke said.

The Bush administration and financial institutions may soon announce a plan to freeze interest rates that were scheduled to be reset at a higher level, the Journal reported. Currently, more than two million loans are expected to reset, the newspaper reported.

Interest Rate Cut

Additionally, the Wall Street Journal reported the U.S. is close to an agreement that will help freeze mortgage rates for subprime borrowers, lowering the risk of defaults.

``The worry has been that mortgage rate resets will lead to more defaults and be bad for financial companies,'' Dai-Ichi's Kunii said. ``If there is some policy to deal with the situation, that's a definite positive.''

JFE, the world's third-largest steelmaker, added 310 yen, or 5.4 percent, to 6,050. Nisshin Steel Corp. climbed 24 yen, or 6.2 percent, to 412. Tokyo Steel Manufacturing Co. gained 69 yen, or 5.1 percent, to 1,417.

Shinya Yamada, a Tokyo-based analyst at Credit Suisse, boosted his rating on Japanese steel makers to ``market weight'' from ``underweight'' in a note to clients dated yesterday.

The Topix Iron & Steel Index slumped 21 percent in the three months to yesterday, the second-worst performance among the 33 industry groups included in the broad gauge.

`Very Cheap'

``We expect inventory cycles in the U.S., Japan and Europe to spur recoveries in demand for steel, and see little risk of earnings declines for the industry at large,'' Yamada wrote.

The analyst raised his recommendation on Tokyo Steel Manufacturing to ``outperform'' and boosted Nisshin Steel and JFE to ``neutral.''

``Steel companies are still a buy because they have the advantage of quality over competitors in countries like China and because of the growth in emerging economies,'' said Yuuki Sakurai, who helps oversee $41.5 billion as general manager of financial and investment planning at Fukoku Mutual Life Insurance Co. ``Most Japanese equities are very, very cheap.''

Mitsui O.S.K., Japan's second-largest shipping line, gained 88 yen, or 5.6 percent, to 1,651. Kawasaki Kisen Kaisha Ltd., the country's third-biggest, rose 65 yen, or 5.2 percent, 1,315.

The Baltic Dry Index, an overall gauge of commodity shipping costs, jumped 1.7 percent yesterday, rebounding for a second day. The benchmark had slumped 10 percent over a 10-day decline, the longest losing streak since May.

Dainippon Screen Manufacturing Co. surged 34 yen, or 5.8 percent, to 624, the steepest rally since August. Shin Horie, an analyst at Goldman, Sachs & Co., raised his rating on the semiconductor production equipment maker to ``neutral'' on the view that there's little risk that chip-related stocks will fall further.

Nikkei futures expiring in December rose 1 percent to 15,730 in Osaka and added 1 percent to 15,710 in Singapore.

Dainippon Screen Manufacturing Co. (7735 JT)
JFE Holdings Inc. (5411 JT)
Kawasaki Kisen Kaisha Ltd. (9107 JT)
Mitsui O.S.K. Lines Ltd. (9104 JT)
Nippon Steel Corp. (5401 JT)
Nisshin Steel Corp. (5407 JT)
Tokyo Steel Manufacturing Co. (5423JT)

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net.

Last Updated: November 30, 2007 02:00 EST