Dec. 28 (Bloomberg) -- Japanese stocks gained after a government report showed industrial production rose for the first month in three, providing evidence that growth in the world's second-largest economy will be sustained.

The Topix index added 0.5 percent at the 3 p.m. close in Tokyo. Banks such as Mizuho Financial Group Inc. accounted for most of the advance on optimism economic growth would spur corporate and consumer lending. The Nikkei 225 Stock Average rose 0.5 percent to 11,424.13, its highest since July 21.

``The economic outlook seems to be better than we had thought,'' said Masaki Iso, who oversees $7.6 billion as head of Japanese equities at Yasuda Asset Management Co. in Tokyo. ``The gain in bank stocks is strong evidence investors are more confident about the economy.''

Morgan Stanley Capital International's Asia-Pacific Index, which tracks more than 900 stocks, advanced 0.5 percent to 100.06, its highest in more than four years, after crude oil prices plunged 6.5 percent in New York.

Korea Electric Power Corp., which spends about a quarter of its fuel budget on oil, and exporters such as Hon Hai Precision Industry Co. gained on optimism lower energy costs will boost earnings. Most of the countries in the region import almost all of their oil.

Singapore Airlines Ltd. dropped for a second day on concern the region's tourism industry will be affected after an earthquake off Indonesia triggered tsunamis on Dec. 26 that killed more than 23,000 people in Asia.

Sri Lanka's stock index fell 4.4 percent, the biggest drop in more than eight months, in the first day of trading after the giant waves killed more than 12,200 people on the island.

Stocks rose in every other local market except Malaysia, India and China. Markets in Australia and New Zealand were shut for the Christmas holiday.

`Big Plus'

Mizuho, Japan's biggest bank by assets, added 3.1 percent to 507,000 yen. The shares have risen for 11 days, climbing 15 percent. Mitsubishi Tokyo Financial Group Inc., the second biggest, climbed 1 percent to 1.02 million yen.

Production in Japan rose a seasonally adjusted 1.5 percent last month from October, the government said. The median forecast of 33 economists surveyed by Bloomberg was for a 1.8 percent gain.

Crude oil for February delivery plunged almost $3 to $41.32 a barrel in New York. It recently traded at $41.70 in Asia.

``It's a big plus for the market now that we are seeing oil prices come off a bit,'' said Nobuki Goto, who helps manage the equivalent of $14 billion at Tokio Marine Asset Management Co. in Tokyo. Goto said he's buying bank stocks, which he didn't name.

Advantest, Chartered

Korea Electric, the nation's biggest power producer, rose 2.8 percent to 27,550 won. Hon Hai Precision, Taiwan's largest electronics company by sales, advanced 1.5 percent to NT$140.

Advantest Corp., whose overseas sales account for more than two-thirds of its total sales, added 1.4 percent to 8,810 yen. Chartered Semiconductor Manufacturing Ltd., Singapore's biggest chipmaker, climbed 1 percent to 97 Singapore cents.

Oil producers and explorers such as AOC Holdings Inc. declined. AOC Holdings slid 0.7 percent to 1,012 yen. SK Corp., South Korea's largest oil refiner, lost 2.7 percent to 60,500 won. CNOOC Ltd., China's biggest offshore oil and gas company, dropped 1.8 percent to HK$4.175.

The quake generated waves as high as 10 meters (33 feet), striking tourist resorts from Thailand to the Maldives. The Sri Lankan and Indonesian governments declared national disasters.

`Immediate Impact'

``Tourism stocks will suffer an immediate impact because people will tend to cancel trips and avoid trouble spots,'' said Koh Huat Soon, who manages the equivalent of $26.3 million at Pacific Mas Asset Management Sdn. in Kuala Lumpur. ``It will be temporary.''

Singapore Airlines, which flies to some of the affected cities including Colombo, Penang and Male, declined 0.9 percent to S$11.40. It also dropped 0.9 percent yesterday.

Thai Airways International Pcl fell 1.5 percent to 48 baht, after yesterday's 3.5 percent tumble. The country's biggest carrier said it will add two flights from Phuket to Bangkok to help passengers and those injured leave the island.

In Sri Lanka, tourism-related companies such as John Keells Holdings Ltd. led declines. John Keells, which runs nine hotels and resorts in Sri Lanka and the Maldives, plunged 14 percent to 108.5 rupees. Aitken Spence & Co., one of the country's two biggest hotel operators, tumbled 12 percent to 374.75 rupees.

``The short-term economic damage would be extremely severe,'' said Murtaza Jafferjee, who manages $12 million of Sri Lankan stocks at JB Securities Pvt. in Colombo. ``The country will take a year or more to recover.''

Advantest Corp. (6857 JT)
Aitken Spence & Co. (SPEN SL)
AOC Holdings Inc. (5017 JT)
Chartered Semiconductor Manufacturing Ltd. (CSM SP)
CNOOC Ltd. (883 HK)
Hon Hai Precision Industry Co. (2317 TT)
John Keells Holdings Ltd. (JKH SL)
Korea Electric Power Corp. (015760 KS)
Mitsubishi Tokyo Financial Group Inc. (8306 JT)
Mizuho Financial Group Inc. (8411 JT)
Singapore Airlines Ltd. (SIA SP)
SK Corp. (003600 KS)
Thai Airways International Pcl (THAI TB)

To contact the reporter on this story: Neha Kumar in Tokyo at nkumar2@bloomberg.net.

Last Updated: December 28, 2004 03:12 EST