Nikkei bumps up on BOJ rate cut

Japan's Nikkei rose 3.7% as exporters like Honda Motor climbed up after the weakening of the yen on reports that the Bank of Japan will cut interest rates later this week.

But the market came off earlier gains of as much as 7 percent after the yen cut some of its losses.

Japan's central bank is thinking of cutting rates from an already low 0.5 percent at Friday's policy meeting. This joins an expected round of rate cuts in coming days as central banks stumble with a darkening global economic outlook.

"The reports about the BOJ's rate cut helped trigger short covering, but that alone is not sufficient reason for investors to keep buying stocks," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC."Even if the BOJ did cut rates, that wouldn't improve economic fundamentals, leaving the market still at the mercy of supply and demand, and currency moves."

As of 0453 GMT, the benchmark Nikkei average added 279.54 points, while the broader Topix  climbed 3.1 percent.

Reports of cut helped its mark

An early report from the Nikkei business daily about a possible central bank rate cut in Japan helped Wall Street mark its second-best day ever on Tuesday.

"When you look at Japan's economic health alone, the Bank of Japan doesn't need to cut interest rates. I also doubt whether a rate cut would stem yen rises," said Koichi Haji, chief economist at NLI Research Institute.

"Still, a rate cut would send a message to the world that Japan is cooperating with other nations in tackling the financial crisis."The dollar fell 0.5 percent from late U.S. trade to 97.50 yen  after having surged as high as 99.79 yen on trading platform EBS but remained well above the 13-year low of 90.87 yen struck last week.