Nov. 1 (Bloomberg) -- Japanese stocks surged to their highest in more than four years after the Bank of Japan said the nation's seven-year bout of deflation will end by April.

Banks such as Mitsubishi UFJ Financial Group Inc. and property companies such as Mitsui Fudosan Co. led the gains. A government report that showed increases in consumer incomes and spending also helped spur the rally.

Trading began 4 1/2 hours late after a computer failure caused the Tokyo Stock Exchange to suspend all equities transactions for the first time.

``The trading halt doesn't change the scenario for a bull market,'' said Shigeharu Shiraishi, a managing director at Societe Generale Asset Management (Japan) Co. in Tokyo, which handles about $15 billion. ``Japan's growth prospects have been brightening up and the U.S. is looking solid. They are going to be the biggest drivers for stocks.''

The Nikkei jumped 261.36, or 1.9 percent, to 13,867.86 at the 3 p.m. close in Tokyo, its highest since May 24, 2001. The average rose for a second day, bringing its two-day gain to 3.9 percent, the most since Oct. 4, 2004.

The Topix index added 28.29, or 2 percent, to 1473.02. The index closed at its highest since Oct. 10, 2000, closing at a five-year high for a second day.

About 1.9 trillion yen ($16 billion) in shares included in the Topix traded, 6 percent less than the daily average for the past three months. Three shares gained for each one that fell on the Tokyo Stock Exchange's first section.

Fujitsu Falls

The trading session only lasted for an hour and a half after the computer problem was fixed. The Tokyo Exchange, the world's second largest, said an upgrade last month to handle record transactions caused a breakdown in the bourse's computer system. The last time the market couldn't open on schedule was on Aug. 1, 1997, when limited trading kept going without computers.

Related to the problem, Fujitsu Ltd., a Japanese supplier of computer servers and phone equipment, declined 12 yen, or 1.6 percent, to 752. The Tokyo bourse said it has been using a system provided by Fujitsu since May 2000.

``The systems and software were developed jointly with the Tokyo Exchange, so it's difficult to say who's at fault,'' said Toshiaki Koike, Fujitsu's spokesman in Tokyo. ``All upgrades are also carried out jointly.''

Japanese stocks also gained after Prime Minister Junichiro Koizumi reshuffled his cabinet yesterday. Koizumi appointed Shinzo Abe, Taro Aso and Sadakazu Tanigaki as members of his cabinet, while Heizo Takenaka was appointed minister of internal affairs and communications.

`Sound'

``The latest cabinet reshuffle was sound, with few surprises,'' said Shigemi Nonaka, chairman of Polestar Investment Management Co. in Tokyo, which manages more than $110 million in assets. ``The lineup confirms that Koizumi's reform policy will continue and that's a good thing.''

After the market closed yesterday, Japan's central bank predicted a 0.1 percent gain in core consumer prices this fiscal year, reversing a forecast for a decline. Core prices, which exclude food, will rise 0.5 percent next fiscal year, compared with an April outlook of 0.3 percent, according to the median forecast of nine policy makers.

Measures tracking lenders and property companies were the two best performers among the 33 industry groups that make up the Topix on expectations that the return of inflation will help boost land prices and cut bad loans.

`Rushing to Buy'

Mizuho Financial, Japan's second-largest bank by assets, surged 61,000 yen, or 7.9 percent, to 833,000. Resona Holdings Inc., Japan's fourth-largest lender, jumped 25,000 yen, or 7.5 percent, to 360,000. Sumitomo Mitsui Financial Group Inc., the nation's third-largest, climbed 70,000 yen, or 6.5 percent, to 1.14 million.

``Everyone will be rushing to buy given the economic fundamentals,'' said Tomoaki Ito, a fund manager, at Nissay Asset Management Corp., which looks after about $63 billion in Tokyo.

Mitsui Fudosan, Japan's biggest property developer by sales, advanced 75 yen, or 4 percent, to 1,970 after returning to profit in the second quarter as the vacancy rate improved and Tokyo land prices rose for the first time in more than a decade in Tokyo.

Sumitomo Realty & Development Co., the nation's third-largest property developer, rallied 122 yen, or 6.5 percent, to 1,992. Daikyo Inc., a condominium developer that also manages hotels and golf courses, surged 90 yen, or 14 percent, to 730.

In the U.S., the Standard & Poor's 500 Index rose 0.7 percent, bringing its two-day advance to 2.4 percent, the biggest two-day rally in almost a year. Consumer incomes increased 1.7 percent in September, the Commerce Department said. Economists surveyed expected growth of 0.3 percent.

Earnings Watch

Earnings also drove shares higher. Suzuki Motor Corp., 20 percent owned by General Motors Corp., jumped 145 yen, or 7.3 percent, to 2,135. The company raised its forecast to a third year of record earnings for the 12 months ending March 31, driven by higher overseas demand. It also raised its planned dividend to 10 yen from 8 yen for its business year.

TDK Corp., Japan's largest maker of disk-drive parts, climbed 520 yen, or 6.7 percent, to 8,330 after raising its full-year profit forecast by 2 percent and sales forecast by 5.1 percent.

Tokyo Gas Co., Japan's biggest gas utility, surged 26 yen, or 5.7 percent, to 482 after reporting a 2.5 percent increase in second-quarter sales as cooler weather boosted demand and as the company signed up more customers.

Bucking the trend, Pioneer Corp., Japan's second-biggest maker of plasma display televisions, lost 17 yen, or 1.2 percent, to 1,444 after the company had a second-quarter loss and cut its shipment forecasts for plasma televisions and DVD recorders.

Elsewhere, Nippon Sheet Glass Co., Japan's second-biggest glassmaker, advanced 19 yen, or 3.9 percent, to 512 after saying it may bid for U.K. based Pilkington Plc, the world's largest maker of car windshields, as demand for auto glass surges in markets such as China.

Nikkei 225 futures for December delivery gained 1.8 percent to 13,860 in Osaka and climbed 1.7 percent to 13,870 in Singapore.

Daikyo Inc. (8840 JT)
Fujitsu Ltd. (6702 JT)
Mitsui Fudosan Co. (8801 JT)
Mizuho Financial Group Inc. (8411 JT)
Nippon Sheet Glass Co. (5202 JT)
Tokyo Gas Co. (9531 JT)
Pioneer Corp. (6773 JT)
Resona Holdings Inc. (8308 JT)
Sumitomo Mitsui Financial Group Inc. (8316 JT)
Sumitomo Realty & Development Co. (8830 JT)
Suzuki Motor Corp. (7269 JT)
TDK Corp. (6762 JT)

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

Last Updated: November 1, 2005 02:36 EST