Oct. 3 (Bloomberg) -- Japanese stocks rose, led by financial shares, after Citigroup Inc. said it plans to buy the 32 percent of Nikko Cordial Corp. it doesn't already own and on speculation that the worst of the U.S. credit-market crisis may be over.

Securities firms such as Nomura Holdings Inc. gained on the view more takeovers in the industry by foreign companies will follow. Nikko Cordial, Japan's third-biggest securities firm, jumped by the exchanged-imposed daily limit after Citigroup said it will buy the remaining shares at a 16 percent premium to its last traded price.

Measures tracking banks, consumer lenders and brokerages were among the Topix index's four worst performing industry groups last month as U.S. subprime mortgage losses led to a surge in borrowing costs worldwide.

``The Nikko Cordial case isn't something investors can ignore, it has changed the view that Japan is a tough place for M&As, to a more positive one,'' said Kiyoshi Ishigane, who helps oversee $61 billion in assets at Mitsubishi UFJ Asset Management Co. in Tokyo. ``Financial stocks had been oversold because of the concerns raised by the subprime problem.''

JFE Holdings Inc. led advances by steelmakers after its unit JFE Steel Corp. said it will raise the price of metal used for ships by 15 percent, suggesting that higher raw materials costs won't dent profitability.

The Nikkei 225 Stock Average rose 153.11, or 0.9 percent, to 17,199.89, the highest since July 31. The broader Topix added 24.22, or 1.5 percent, to 1,664.01. A measure including brokerages jumped 5.6 percent, the best performer among the Topix's 33 industry groups.

Brokerages Gain

Nomura Holdings, Japan's largest brokerage, added 80 yen, or 4 percent, to 2,090. Daiwa Securities Group Inc., the second ranked, jumped 65 yen, or 5.8 percent, to 1,178 yen.

Nikko Cordial surged 200 yen, or 14 percent, to 1,662, the biggest gain since Dec. 19, 2001. Citigroup Japan Holdings Ltd. will use stock to acquire the remaining 32 percent of Nikko Cordial for about 1,700 yen a share, Citigroup Japan's Chief Executive Officer Douglas Peterson said yesterday. The additional shares will cost the biggest U.S. bank 530 billion yen ($4.6 billion).

The purchase by Citigroup follows rule changes in May that allow Japanese subsidiaries of foreign companies to make takeovers using shares of their parent -- so-called triangular mergers.

`In the Past'

Brokerages as a group lost 5 percent last month, even as the Topix gained 0.5 percent. Financial shares rallied yesterday as Citigroup Inc.'s Chief Executive Charles Prince said the largest U.S. bank expects ``to return to a normal earnings environment in the fourth quarter'' and former Federal Reserve Chairman Alan Greenspan said the credit slump may be ending.

Saudi Prince Alwaleed bin Talal, a billionaire investor whose holding company owns 3.6 percent of Citigroup, said yesterday in an e-mailed statement that the third-quarter profit drop was a ``mere hiccup'' and he backs the bank's management.

``There's a view that the subprime problem is in the past, at least for the time being,'' said Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc. in Tokyo.

Mitsubishi UFJ Financial Group Inc., Japan's largest publicly traded bank, rose 44 yen, or 4 percent, to 1,158. Mizuho Financial Group Inc., the second biggest, jumped 30,000 yen, or 4.5 percent, to 691,000 yen.

JFE, IHI

JFE, Japan's second-biggest steelmaker, climbed 250 yen, or 3.1 percent, to 8,370 yen. Its unit, JFE Steel, will raise the price of steel plate used for ships and heavy equipment by 15 percent as raw materials costs increased.

JFE Steel will boost the price by about 10,000 yen a ton to about 80,000 yen during this fiscal year, company spokesman Nobuyuki Izawa said.

JFE will also team up with Toshiba Corp., a maker of heavy electrical machinery, to design and make small and mid-size steam turbines for power plants, Hiroshi Kurihara, a spokesman for Toshiba Plant Systems & Services Corp., said. Toshiba climbed 26 yen, or 2.4 percent, to 1,091.

IHI Corp., Japan's third-biggest maker of heavy machinery, jumped 28 yen, or 11 percent, to 292, rallying from a three-day, 29 percent slump. It was also the biggest one-day gain since Jan. 4, 2006. The recommendation on the stock was raised to ``buy/attractive'' from ``neutral/attractive'' by Kunio Sakaida, an analyst at Goldman, Sachs & Co.

Nintendo Co., maker of the best-selling Wii game console, added 1,700 yen, or 2.7 percent to 64,300 yen in Osaka. The shares rose 5.2 percent yesterday after Goldman rated the stock ``buy'' in new coverage.

Access, Kenedix

Matsushita Electric Industrial Co., the world's largest consumer electronics maker, fell 55 yen, or 2.5 percent, to 2,125, after dropping as much as 6 percent, on concern earnings will be hurt by a production halt at a battery factory operated by one of its units in Osaka after a fire on Sept. 30. It was the biggest one-day drop since Aug. 17. The company hasn't said when production will resume or how much capacity was affected.

Access Co., a Tokyo-based maker of mobile phone software, surged by the exchange-imposed daily limit of 50,000 yen, or 13 percent, to 445,000, after Israeli mobile phone maker Emblaze Ltd. said it will use the company's software for handsets supplied to Sharp Corp.

Kenedix Inc., a real estate investment company, climbed 26,000 yen, or 13 percent, to 233,000. The stock was rated ``buy'' in new coverage by Junya Ayada, an analyst at Daiwa Institute of Research.

Nikkei futures expiring in December gained 0.6 percent to 17,200 in Osaka and added 0.6 percent to 17,195 in Singapore.

Access Co. (4813 JT)
IHI Corp. (7013 JT)
JFE Holdings Inc. (5411 JT)
Kenedix Inc. (4321 JT)
Matsushita Electric Industrial Co. (6752 JT)
Mitsubishi UJF Financial Group Inc. (8306 JT)
Mizuho Financial Group Inc. (8411 JT)
Nintendo Co. (7974 JO)
Nikko Cordial (8603 JT)
Nomura Holding Inc. (8604 JT)

To contact the reporter for this story: Chen Shiyin in Tokyo at schen37@bloomberg.net; Kiyori Ueno in Tokyo at kueno@bloomberg.net.

Last Updated: October 3, 2007 02:52 EDT