Sept. 12 (Bloomberg) -- Japanese stocks rose, with key benchmarks set for their highest close in more than four years, after Prime Minister Junichiro Koizumi won a landslide election victory, giving him a mandate to sell state assets.

Banks including Mizuho Financial Group Inc. led gains by companies that earn most of their income in Japan after Koizumi's Liberal Democratic Party captured a single-party majority in the lower house for the first time since the 1990 election.

``I am stunned by the scale of the victory,'' said Scott McGlashan, a London-based fund manager at J O Hambro Capital Management Ltd., which looks after more than $3.5 billion. ``The market will put on another 5 percent in no time.''

The Nikkei 225 Stock Average gained 155.73, or 1.2 percent, to 12,847.77 at 2:13 p.m. in Tokyo. The Topix index added 14.14, or 1.1 percent, to 1307.49, with lenders accounting for 24 percent of the gain. Key indexes are set for their highest closes since June 2001.

Stocks also climbed after a government report showed Japan's economy grew in the second quarter at three times the pace the government had initially estimated as capital spending increased faster than anticipated. Fanuc Ltd. led gains by machinery stocks.

Nikkei 225 futures for December delivery rose 1.1 percent to 12,810 in Osaka and in Singapore.

Landslide Victory

Industry measures tracking banks, property companies, insurers, brokerages and services and brokerages were the five best performers among the 33 industry groups that make up the Topix. Shares of companies that earn most of their profits at home led the gains on expectations that a bigger mandate for Koizumi will allow him to pursue plans to boost economic growth.

Mizuho, Japan's largest bank by assets, climbed 21,000 yen, or 3.4 percent, to 634,000. Mitsui Fudosan Co., Japan's biggest developer, jumped 65 yen, or 4.2 percent, to 1,609. Millea Holdings Inc., Japan's largest casualty and property insurer by premium income, advanced 40,000 yen, or 2.5 percent, to 1.63 million. Secom Co., Japan's largest maker of security systems, added 350 yen, or 6.6 percent, to 5,650. Nomura Holdings Inc., Japan's largest brokerage, added 18 yen, or 1.2 percent, to 1,498.

The Nikkei and the Topix have advanced more than 9 percent since Aug. 8 when Koizumi dissolved the lower house of the Diet, or parliament, and called elections. The indexes are the best performers among the world's 10 biggest stock markets since then.

Koizumi, 63, called the election after some members of his own party voted with opposition legislators to block his plan to sell Japan Post, which, with 350 trillion yen ($3.2 trillion) in assets is the world's largest savings bank.

`Big Plus'

The win gives Koizumi a mandate to accelerate spending cuts, pursue policies to boost investment and sell the post office, which has been used to pay for government spending that's swollen Japan's debt to a record.

``Koizumi will now be able to push his reform agenda with a much freer hand, having to compromise less within his own party, within the ruling coalition and within the Diet itself,'' said Kirby Daley, a strategist at Societe Generale Securities' Fimat unit in Tokyo. ``From the standpoint of foreign investors this is a big plus.''

Overseas investors have been net buyers of Japanese stocks for the past 12 weeks, according the Ministry of Finance, amid evidence of a pickup in growth at home.

NTT Data Jumps

NTT Data Corp., which provides computer services to Japan's post office system, surged 29,000 yen, or 7.4 percent, to 420,000 yen on expectations that approval of the postal bill will lead to more business.

``NTT Data will continue to get orders to revamp the postal service's computer system with the privatization,'' said Satoru Kikuchi, an analyst at Nomura Securities Co. who has a ``buy'' rating on the company. ``The projects may require 2,000 staff and may add at least 50 billion yen of sales in fiscal year 2008.''

Fanuc, Japan's largest industrial robotics makers, advanced 130 yen, or 1.6 percent, to 8,400. SMC Corp., an air filter maker, climbed 190 yen, or 1.4 percent, to 13,890.

A government report before the market opened showed the economy grew at a 3.3 percent pace in the second quarter. That compares with an Aug. 12 estimate of a 1.1 percent annualized pace of expansion and the median 1.5 percent forecast by 18 economists surveyed by Bloomberg News.

It is the first time since 1991 that the recovery is being fueled by consumer and capital spending, not exports and government money. When Koizumi became prime minister four years ago, the economy was in its third recession since the so-called asset-price bubble burst in 1991.

`Domestic-Oriented'

``Anything domestic-oriented, we feel, will see some upsurge due to domestic demand, as well as demand from abroad,'' said Martin Schulz, director of international equities at Allegiant International Equity Fund in Cleveland, Ohio.

Allegiant bought Mitsubishi Tokyo Financial Group Inc., Tokyu Land Corp., Yamada Denki Co., Natori Co. after Koizumi's Aug. 8 decision to call lower house elections, Schulz said.

Mitsubishi Tokyo, Japan's second-largest lender, climbed 40,000 yen, or 3.6 percent, to 1.16 million. Yamada Denki, the electronics retail chain operator, surged 700 yen, or 8.9 percent, to 8,550, Natori Co., a snack maker, added 1 yen, or 0.1 percent, to 814.

Some strategists, such as Shinichi Ichikawa at Credit Suisse First Boston, said the gains may be short-lived because the surge in the Nikkei and the Topix to four-year highs already prices in the benefits of Koizumi's victory. Investors will now focus on what measures his government will take to sustain economic growth.

``Japanese equities have generally priced in expectations that Mr. Koizumi's re-election will lead to further reforms,'' Ichikawa, CSFB's Japan equity strategist based in Tokyo, said in a note to clients dated Sept. 8.

Tax Focus

Revamping Japan's tax system, including a possible increase in the nation's 5 percent sales tax will be the focus, said Ichikawa. He predicts a tax increase in April 2009.

TIS Inc., which provides computer system construction and data processing services, slid 385 yen to 2,625 after the company slashed its half-year profit forecast and analysts at three brokerages including Deutsche Bank AG cut their rating on the stock. The 13 percent drop was the biggest on the Tokyo Stock Exchange's first section and also the biggest on the Morgan Stanley Capital International World Index.

About 1.6 trillion yen in shares included in the Topix traded, 14 percent more than the daily average for the past three months. Three shares gained for every one that fell on the Tokyo Stock Exchange's first section.

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net.

Last Updated: September 12, 2005 01:16 EDT