TOKYO - Japanese stocks rallied 3.69 percent in morning deals on Monday, lifted by a rebound on overseas markets after the US central bank on Friday cut a key interest rate to ease a credit squeeze, dealers said.
The Tokyo Stock Exchange's benchmark Nikkei-225 index of leading shares rose 562.89 points to 15,836.57 by the lunch break.
On Friday the index had plunged by 874.81 points or 5.42 percent to a one-year low -- the biggest one-day point drop since April 2000.
The broader Topix index climbed 53.89 yen or 3.6 percent to 1,534.28.
Gainers outnumbered decliners 1,407 to 255, with 56 issues unchanged.
Turnover dipped to 1.04 billion shares from 1.1 billion Friday morning.
US and European stocks rebounded Friday after the US Federal Reserve slashed the lending rate it charges commercial banks to try to calm a recent storm on world financial markets sparked by fears of a credit crunch following problems in the US sub-prime mortgage market.
The central bank cut the rate it charges commercial banks to 5.75 percent, saying it wanted to restore order in financial markets.
The move raised expectations that the Fed may also lower its key federal funds rate -- the overnight rate banks charge each other -- which has been left unchanged at 5.25 percent since June 2006.
Japan's central bank said Monday that it would inject a further 1.0 trillion yen (8.7 billion dollars) into the banking system as part of ongoing efforts to restore calm.
Central banks from Sydney to Washington have together pumped billions of dollars into the global financial system in recent days amid signs that private banks and firms are having trouble raising funds and rolling over debt.
Japanese investors are now waiting nervously for an interest rate decision from the Bank of Japan on Thursday, although expectations of a rate rise have faded following the recent turmoil.
"The market widely expects that the Bank of Japan will not raise interest rate this week," said Ryuta Otsuka, a strategist at Toyo Securities.
"It will be a surprise if the central bank raises rates and it could weigh down on share prices," said Otsuka.
08/20/2007 02:40 GMT