Aug. 10 (Bloomberg) -- Japan’s benchmark stock indexes rose to 10-month highs as an unexpected drop in the U.S. unemployment rate and a bigger-than-estimated gain in Japan’s machinery orders added to evidence the global economy is recovering.

Honda Motor Co., the maker of the Insight hybrid car, rose 3.6 percent. Disco Corp., the world’s biggest maker of equipment to grind semiconductors, jumped 8.7 percent after reversing its forecast for a loss to a profit. Tiremakers Bridgestone Corp. and Sumitomo Rubber Industries Ltd. gained at least 5.6 percent after boosting their outlooks. Mizuho Financial Group Inc. climbed 3.6 percent following a rally in U.S. bank shares.

The Nikkei 225 Stock Average added 112.17, or 1.1 percent, to 10,524.26 in Tokyo, the highest close since Oct. 3. The broader Topix index advanced 12.48, or 1.3 percent, to 969.24, a level not seen since Oct. 7.

“The U.S. is the world’s engine of consumer spending and investors see the improvement in its labor market as a chance to buy Japanese shares, which are sensitive to the global economic cycle,” said Akio Yoshino, chief economist at Societe Generale Asset Management (Japan) Co., which manages the equivalent of $14 billion. “Equipment makers are benefiting from increasing demand for flat-display TVs in China and hybrid cars.”

The Nikkei has gained 19 percent in 2009 as manufacturing in China, Europe and the U.S. improved. Stocks on the gauge traded at 1.34 times corporate net worth last week, climbing back to their level on Sept. 29, according to data from Nikkei Inc., which compiles the gauge.

Nomura’s Nikkei Projection

Nomura Holdings Inc., Japan’s largest brokerage, said the Nikkei 225 may rise as high as 11,500 by the end of October, lifting its estimate from between 10,500 and 11,000. Companies’ efforts to cut costs boosted investor confidence in the outlook for profits, Nomura said in a Japanese-language report on Aug. 7.

In New York, the Standard & Poor’s 500 Index rose 1.3 percent on Aug. 7 after a Labor Department report showed the joblessness rate dropped to 9.4 percent last month from June, the first decline since April 2008. Economists had estimated the rate would increase to 9.6 percent.

Honda, which gets almost half its sales in North America, added 3.6 percent to 3,210 yen. Sony Corp., the maker of Bravia televisions, increased 3.2 percent to 2,780 yen.

Makers of cars and electronics, which contributed the most to the Topix’s gain, were also buoyed by the weaker Japanese currency. The yen depreciated against the dollar to as much as 97.78 from about 95.43 at the last close of Tokyo stock trading, boosting the value of overseas revenue when converted into yen.

Disco Forecast

Disco surged 8.7 percent to 5,120 yen. The company reversed its annual loss forecast for this year to 100 million yen ($1.03 million) in net income, citing improving orders for chip-making equipment.

Japan’s machine orders jumped 9.7 percent in June from May, the Cabinet Office said before markets opened today. Bookings, an indicator of corporate spending in the next three to six months, were estimated to have risen 2.6 percent, according to economists surveyed by Bloomberg.

Bridgestone, the world’s largest tiremaker, added 5.6 percent to 1,785 yen, its highest level since Nov. 5. The company forecast 6 billion yen in net income for 2009, compared with an earlier projection of breakeven, citing cost cuts.

Sumitomo Rubber, Japan’s No. 2 tiremaker by market value, soared 8.8 percent to 893 yen. Its first-half net loss was less than half its earlier projection, the company said in a preliminary earnings report, prompting UBS AG to raise the stock to “buy” from “neutral.”

Banks Gain

Mitsubishi Rayon Co. climbed the most in almost nine years, leading gains in both the Nikkei 225 and the Topix, after the Nikkei newspaper said it may be bought by rival Mitsubishi Chemical Holdings Corp. The shares soared 20 percent.

Mizuho, which posted a first-quarter loss last month because of rising non-performing loans, gained 3.6 percent to 233 yen, and market leader Mitsubishi UFJ Financial Group Inc. advanced 1.8 percent to 609 yen. The KBW Bank Index jumped 3.6 percent in New York on Aug. 7 to the highest level since Dec. 16. The gauge, compiled by New York-based Keefe, Bruyette & Woods Inc., represents 24 U.S. financial companies including Bank of America Corp. and JPMorgan Chase & Co.

Japan Tobacco Inc., the world’s No. 3 listed cigarette maker, lost 1.4 percent. Tokyo Electric Power Co. declined 0.4 percent. Foodmakers and electricity generators, which were the biggest drags on the Topix, are considered defensive by investors who see them as more insulated from a slowdown in the economy than equities that rise and fall with economic cycles.

Rising Bankruptcies

“When cyclical stocks are bought up, defensives are inevitably sold off,” said Hiroaki Osakabe, a fund manager at Tokyo-based Chiba-Gin Asset Management Co., which oversees the equivalent of $1 billion. “There is only a limited amount of money circulating in the equity market because people expect the pace of the economic recovery to be slow.”

Tokyo Shoko Research Ltd. said today corporate bankruptcies rose in July for a second month as the recession reduced sales.

Nikkei futures expiring in September added 1.3 percent to 10,550 in Osaka and gained 1.4 percent to 10,545 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Last Updated: August 10, 2009 03:26 EDT