Oct. 4 (Bloomberg) -- Japanese stocks rose, led by technology shares such as NEC Corp. and Canon Inc., after the dollar strengthened against the yen and an industry report showed global semiconductor sales are ``on pace'' for a record in 2005.

Honda Motor Co. led gains by automakers after the nation's top three automakers reported increases in U.S. sales last month, as Asian companies boosted market share on demand for fuel- efficient vehicles.

``Technology stocks are playing catch-up to the rest of the market with some evidence that they've hit bottom,'' said Nobuki Goto, who helps look after about $14 billion at Tokio Marine Asset Management Co. in Tokyo. ``Automakers will be the direct beneficiaries of a weaker yen and are attracting investors as well as consumers for their technology.''

Goto said he favors electronic component makers and auto parts makers, declining to name the companies.

The Nikkei 225 Stock Average gained 118.05, or 0.9 percent, to 13,643.33 as of 1:05 p.m. in Tokyo, set for its highest close since May 2001. The Topix index added 3.72, or 0.3 percent, to 1415.00, with computer-related shares accounting for more than half of the index's gain.

Nikkei 225 futures for December delivery added 0.4 percent to 13,630 in Osaka and climbed 0.5 percent to 13,635 in Singapore.

The dollar rose to as high as 114.38 yen in New York, a 16- month high, and recently traded at 114.07 yen. A stronger dollar increases the value of a company's earnings outside Japan when translated into yen.

The Bank of Japan's Tankan business confidence survey yesterday showed Japanese manufacturers expect the yen to trade at an average 105.18 against the dollar this fiscal year.

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NEC, Japan's biggest mobile phone maker, jumped 39 yen, or 6.3 percent, to 662. Canon, the world's largest maker of copiers, climbed 180 yen, or 2.9 percent, to 6,400.

Fujitsu Ltd., a supplier of computer servers and telecommunications equipment, jumped 40 yen, or 5.3 percent, to 800. Hitachi Ltd., Japan's largest electronics maker, advanced 39 yen, or 5.4 percent, to 764.

The Topix Electric Appliances Index, which tracks the performance of 162 computer-related companies, gained 7.2 percent in the last quarter, lagging behind the Topix's 20 percent jump. The industry measure rose 2.6 percent today, making it the best performer among the 33 industry groups that make up the Topix.

Worldwide semiconductor sales climbed 1.7 percent to $18.6 billion in August from a year earlier and are ``on pace'' for a record in 2005, the Semiconductor Industry Association said. Gains were led by a surge in sales in Asia, the report showed.

``This is very welcome news, as a continued turnaround in the tech sector is key to moving the overall economic recovery in Japan forward,'' said Kirby Daley, a strategist at Societe Generale Securities' Fimat unit in Hong Kong.

U.S. Car Sales

Honda, Japan's third-largest carmaker, advanced 170 yen, or 2.6 percent, to 6,680. Nissan Motor Co., the second largest, climbed 22 yen, or 1.7 percent, to 1,331.

U.S. sales at Japan's carmakers gained at least 10 percent while General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, said U.S. sales of cars and trucks plunged in September as the lure of employee discounts faded.

Nissan's sales rose 16 percent and Honda's advanced 12 percent. Toyota Motor Corp., the No. 1 Asian automaker, had a 10 percent increase in sales.

``We're betting that automakers and machinery makers will be among those that will be the leader of the gains based on their earnings prospects,'' said Kenichi Azuma, a Tokyo-based strategist at Cosmo Securities Co.

About 1.6 trillion yen ($14 billion) in shares included in the Topix traded, about the same as the daily average for the past three months. Stocks that gained outnumbered those that fell 847 to 716 on the Tokyo Stock Exchange's first section.

U.S. Rates

Even so, advances among exporters may be limited after a report showed U.S. manufacturing unexpectedly accelerated in the face of the biggest jump in materials costs in 15 years, suggesting the Federal Reserve will continue raising interest rates as the world's largest economy recovers from two hurricanes.

The Institute for Supply Management's factory index rose to 59.4 in September from 53.6 in August. Readings greater than 50 indicate growth. The index rose to the highest since August 2004, and exceeded all estimates in a Bloomberg survey of 62 economists.

Shares of Toyota, which posted the smallest increase in sales, fluctuated between gains and losses, and recently fell 30 yen, or 0.6 percent, to 5,270.

Construction Companies Drop

Construction companies declined after Credit Suisse First Boston lowered its ratings on four general contractors including Shimizu Corp. saying longer-term construction spending has bottomed.

Shimizu, Japan's third-largest construction company, dropped 25 yen, or 3.5 percent, to 694. Taisei Corp., the nation's largest, lost 13 yen, or 2.8 percent, to 446. Kajima Corp., the second-biggest, slipped 12 yen, or 2.3 percent, to 511. Obayashi Corp., the fourth biggest, lost 17 yen, or 2.3 percent, to 735.

Yoji Otani, a Tokyo-based analyst at CSFB, cut his ratings on the nation's top four contractors to ``underperform'' from ``neutral.''

Hanshin Electric Railway surged by the daily exchange-imposed limit for a second day after government filings showed MAC Asset Management, run by investor Yoshiaki Murakami, acquired more than 38 percent stake in the Osaka-based railway operator.

Murakami, a former Japanese trade ministry official and head of MAC Asset and M&A Consulting Inc., has been known for using his investments to press for better returns for shareholders.

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

Last Updated: October 4, 2005 00:07 EDT