Jan. 24 (Bloomberg) -- Japanese stocks rose for the third day in four, extending a recovery from a three-day slide last week that wiped almost $400 billion off the market's value.

Internet stocks, which led the slide on allegations Livedoor Co. broke securities laws, were at the forefront of today's gains after Yahoo Japan Corp. reported better-than- expected results. Livedoor President Takafumi Horie was arrested last night for allegedly breaking securities laws.

``The worst part of the Livedoor incident is over,'' said Mitsushige Akino, who oversees $190 million as chief investment officer at Ichiyoshi Investment Management in Tokyo. ``Money is shifting into stocks with good earnings prospects.''

The Nikkei 225 Stock Average rose 288.24, or 1.9 percent, to 15,648.89 at the 3 p.m. close in Tokyo and the Topix index advanced 24.53, or 1.5 percent, to 1612.43 with 31 out of 33 industry groups having gains. More than seven stocks rose for every one that fell on the Tokyo Stock Exchange's first section.

Gains in financial stocks such as Sumitomo Mitsui Financial Group Inc. accounted for almost a fifth of the increase in the Topix. A measure of banks rose 1.3 percent, trimming its slide this year to 5.9 percent.

Shares of 117 Internet-related companies in Japan rose by an average of 7.7 percent today, after a 10 percent drop yesterday.

Yahoo Japan, the local unit of the world's most-visited Internet directory, climbed 10,000 yen, or 6.6 percent, to 161,000. After the market closed yesterday, the company said quarterly profit rose 37 percent to a record because advertising revenue and fees from auction services increased.

Yahoo Japan

The earnings showed the business is ``doing very well,'' said Yutaka Murakami, an analyst at Mizuho Securities Co. in Tokyo.

He predicts spending on online advertisements will surge to more than 1 trillion yen ($8.7 billion) by 2015, from 181 billion yen in 2004. Yahoo Japan shares are valued at 109 times its forecast earnings for the year ending March.

Among other Internet stocks, Rakuten Inc., Japan's largest online retailer, surged 8,900 yen, or 10 percent, to 95,000. That was the biggest percentage gain in the Morgan Stanley Capital International World Index.

Softbank Corp., which is the nation's second-largest provider of high-speed Internet access and owns a 42 percent stake in Yahoo Japan, rose 280 yen, or 8.3 percent, to 3,640. The stock had fallen 22 percent since Jan. 16, when prosecutors raided Livedoor's headquarters at the Roppongi Hills office and entertainment complex in central Tokyo.

Livedoor Stock Sunk

Livedoor stock tumbled further after being put on the Tokyo Stock Exchange's ``supervision post'' last night after Horie's arrest, bringing it a step closer to delisting. The shares fell by the exchange-imposed daily limit of 80 yen, or 31 percent, to 176. They have tumbled 75 percent since the raid.

By contrast, affiliates of Livedoor Co., including Livedoor Auto Co. and Dynacity Corp., surged on speculation the companies may become takeover targets.

Livedoor Auto surged 50 yen, or 47 percent to 157 yen. The stock had plummeted 71 percent since Jan. 16.

Dynacity, a condominiums developer, jumped 1,990 yen, or 10 percent, to 21,580, trimming its decline since Jan. 16 to 47 percent. Turbolinux Inc., a developer of Linux-based operating systems, advanced 30,000 yen, or 15 percent, to 229,000. The stock had lost 54 percent since the initial raid on Livedoor.

Domestic Demand

``The market finally cooled down thanks to the Livedoor incident,'' said Akino. ``Banks and real-estate companies will probably resume their gains as domestic-demand-related stocks are still the focus of investors' attention.''

Sumitomo Mitsui, Japan's third-largest lender by assets, advanced 40,000 yen, or 3.4 percent, to 1.23 million. Nomura Holdings Inc., Japan's largest brokerage, gained 45 yen, or 2.2 percent, to 2,110. Mitsubishi Estate, Japan's second-biggest property developer, rose 80 yen, or 3.6 percent, to 2,320.

Sales at Japan's supermarkets rose 1.8 percent in December from a year earlier and those at department stores gained 0.9 percent, the Japan Chain Store Association in Tokyo said today.

Seven & I Holdings Co., Japan's largest retailer, advanced 190 yen, or 4.2 percent, to 4,760. Aeon Co., Japan's second- largest retailer, rose 120 yen, or 4.3 percent, to 2,900.

Lower oil prices helped Sony Corp., the maker of the PSP portable game console and Vaio computers, climb 40 yen, or 0.8 percent, to 4,990. The company had 70 percent of its sales outside Japan in the six months to Sept. 30.

Cheaper Oil

The cost of crude oil recently traded at $67.59 a barrel, having yesterday touched $69.20, the highest since Sept. 2. Cheaper energy prices leave companies and consumers in the U.S. and Europe with more to spend on cars, computers and cameras.

Matsushita Electric Industrial Co., the world's biggest consumer electronics maker, gained 20 yen, or 0.9 percent, to 2,385. Canon Inc., the world's biggest seller of digital cameras, added 80 yen, or 1.2 percent, to 7,010.

``Oil prices need to be watched closely, so any drop from recent highs will help,'' said Yutaka Miura, an equities manager at Shinko Securities Co. in Tokyo.

Commodity stocks such as Mitsubishi Materials Corp. advanced after prices of gold, copper and zinc gained in New York and London.

Mitsubishi Materials

Mitsubishi Materials, Japan's third-largest copper smelter, gained 16 yen, or 3 percent, to 554. Sumitomo Metal Mining Co., the second-largest copper smelter in Japan, advanced 57 yen, or 4.2 percent, to 1,415. Toho Zinc Co., which produces zinc and lead, rose 28 yen, or 2.9 percent, to 995.

In New York, gold futures for February delivery rose 0.9 percent yesterday and copper futures gained 1 percent. Zinc rose to a record in London.

Elsewhere, NTT Data Corp., Japan's largest computer systems integrator and a unit of Nippon Telegraph & Telephone Corp. jumped 27,000 yen, or 5.1 percent, to 556,000 after the Nihon Keizai newspaper said the Tokyo Stock Exchange will name an executive of NTT Data as its chief information officer.

NTT gained 4,000 yen, or 0.8 percent, to 535,000 and Fujitsu Ltd., which now provides the exchange's computer systems, lost 14 yen, or 1.4 percent, to 994.

Nikkei 225 futures expiring in March rose 1.8 percent to 15,650 in Osaka and added 1.7 percent to 15,650 in Singapore.

Dynacity Corp. (8901 JT)
Index Corp. (4835 JQ)
Livedoor Auto Co. (7602 JT)
Livedoor Co. (4753 JT)
Mitsubishi Estate Co. (8802 JT)
Mitsubishi Materials Corp. (5711 JT)
NTT Data Corp. (9613 JT)
Nippon Telegraph & Telephone Corp. (9432 JT)
Nomura Holdings Inc. (8604 JT)
Softbank Corp. (9984 JT)
Sumitomo Metal Mining Co. (5713 JT)
Sumitomo Mitsui Financial Group Inc. (8316 JT)
Toho Zinc Co. (5707 JT)
Turbolinux Inc. (3777 JT)
Yahoo Japan Corp. (4689 JT)

To contact the reporter for this story: Makiko Suzuki in Tokyo at msuzuki13@bloomberg.net.

Last Updated: January 24, 2006 01:56 EST