Sept. 2 (Bloomberg) -- Asian stocks rose, with a regional benchmark set for a five-year high, on expectations the U.S. Federal Reserve will end its interest-rate increases next month to support growth in the world's largest economy.

Fuji Photo Film Co. and Hon Hai Precision Industry Co. led gains by electronics stocks.

``There is growing optimism about the Fed's interest-rate hikes coming to an end,'' said Hirofumi Kasai, who oversees about $10 billion as a chief investment officer at Tokio Marine Asset Management Co. in Tokyo. ``That would mean consumption in the U.S. and the housing market won't be damaged, and that sort of confidence is supporting stocks.''

The Morgan Stanley Capital International Asia-Pacific Index, which tracks more than 1,000 companies, added 0.7 percent to 107.12 at 3:50 p.m. in Tokyo, set for its highest close since Sept. 11, 2000. All 10 of the benchmark's industry groups rose.

Japan's Nikkei 225 Stock Average added 0.7 percent. Taiwan's Taiex index jumped 1.4 percent, the region's biggest gainer. Benchmarks around the region rose, except in Australia, Malaysia and Thailand. Indonesia was closed for a holiday.

Samsung Electronics Co. paced gains by semiconductor makers after Merrill Lynch & Co. raised its recommendation on Samsung and three other memory-chip suppliers to ``buy.''

Companies that rely on U.S. sales advanced after destruction caused by Hurricane Katrina and a report showing a drop in manufacturing last month prompted traders to bet that the Fed will raise borrowing costs just once more this year.

Fuji Photo, Hon Hai

Fuji Photo, the world's fifth-largest seller of digital cameras, gained 2 percent to 3,640 yen. The Japanese company had almost a fifth of its sales from the U.S. last year. Hon Hai Precision, Taiwan's largest electronics company by sales, surged 6.9 percent to NT$146.50. That's its biggest one-day jump since Jan. 21, 2002.

The Institute for Supply Management's factory index fell to 53.6 in August from 56.6 in July. Economists in a Bloomberg News survey expected an increase to 57. The Standard & Poor's 500 Index closed 0.1 percent higher yesterday, while the Dow Jones Industrial Average lost 0.2 percent.

Interest-rate futures show investors expect the Fed's target rate to increase to 3.75 percent next month, from 3.50 percent now. Traders are now giving less than a 50 percent chance of rates reaching 4 percent at the Nov. 1 meeting. The Fed has raised borrowing costs by 0.25 percentage point at each of its last 10 policy meetings since June 2004.

David Rosenberg, Merrill Lynch's chief North American economist, said yesterday the Fed will refrain from raising its interest-rate target at its next policy meeting on Sept. 20.

`Optimistic'

``While there are concerns about the slowdown in the U.S. economy, what's keeping investors optimistic is the expectations that the Fed is going to ease up on interest-rate hikes,'' said Koichi Seki, an equity manager at Chuo Securities in Tokyo. ``That's going to provide support for share prices.''

Hyundai Motor Co., South Korea's largest carmaker, climbed 1.5 percent to 73,700 won. Three out of every four cars Hyundai made in 2004 were sold overseas. United Microelectronics Corp., the world's No. 2 supplier of made-to-order chips, gained 4.6 percent to NT$20.50 in Taiwan.

South Korea's Samsung Electronics, the world's largest maker of memory chips, added 0.9 percent to 554,000 won. Hynix Semiconductor Inc., the world's second biggest, climbed 4.6 percent to 22,900 won. Elpida Memory Inc., Japan's largest memory chipmaker, jumped 5.7 percent to 3,330 yen.

Powerchip Semiconductor Corp., Taiwan's largest memory-chip supplier, advanced 4.5 percent to NT$20.90. Merrill recommended investors buy the four stocks because of higher demand for memory chips used in computers and consumer electronics.

Strong Demand

Global memory chip revenue will climb 8 percent this year and 14 percent in 2006, Simon Woo, a Seoul-based Merrill analyst, said in a note to clients. The brokerage had forecast industry sales of dynamic random access memory, or DRAM, chips, to shrink 1 percent this year and contract 2 percent in 2006.

``Demand will be strong in the second half, which will help boost chipmakers' earnings,'' said Park Hyung Ryul, who helps manage about $400 million at KTB Asset Management Co. in Seoul. ``The second quarter was the bottom for their earnings.''

Caltex Australia Ltd. led gains by oil refiners on speculation Hurricane Katrina's devastation will worsen a shortage of U.S. fuel output, raising imports and prices around the world. Refinery expansions in Asia may fail to keep pace with demand, causing ``continuing tightness,'' Credit Suisse First Boston said in a report today.

Shares of Caltex, a unit of Chevron Corp., rose 5.8 percent to A$19.05, the biggest gain since Feb. 27, 2004. SK Corp., South Korea's largest refiner, rose 2.4 percent to 56,300 won. Nippon Oil Corp., Japan's biggest oil refiner, gained 3.4 percent to 931 yen.

Elsewhere, shares of NTT Urban Development Corp., a real estate leasing company, had the biggest percentage gain on MSCI's World Index, jumping 8.2 percent to 569,000 yen. Nikko Citigroup Ltd. began covering the stock with a ``buy'' recommendation, citing earnings prospects.

To contact the reporter on this story: Michael Tsang in Tokyo at mtsang1@bloomberg.net

Last Updated: September 2, 2005 02:51 EDT