Japanese shares are touching four year highs

The Nikkei-225 index closed at its highest level since August 2001, having risen 160.78 points, or 1.3%, to 12,452.51 in a strong day's trading.

The prospect of stronger economic growth has cheered investors with finance shares particularly benefiting.

Markets have shrugged off uncertainty surrounding next month's election.

Japanese Prime Minister Junichiro Koizumi called a snap poll last month after his plans to privatize the country's post office were rejected.

Foreign interest

Foreign investors have shown increased interest in Japanese shares in recent weeks amid signs of a sustained economic turnaround and the feeling that shares were better value than in the US and Europe.

High oil prices - which remained above $65 a barrel in Asian trading on Monday - have also added impetus to the market.

Higher oil prices are certainly a concern but for the moment, they appear to be good for markets outside the United States Toshihiko Matsuno, assistant general manager of investment research at SMBC Friend Securities

The Topix index of more widely held shares also closed at its highest level since August 2001, up 1.54% to 1,269.82.

"If you look at what foreign investors are doing, it seems as if they are continuing to buy on the assumption that Japanese stocks are lagging behind their European counterparts," Katsuhiko Kodama, head of equities at Toyo Securities, told Reuters.

Banking on recovery

Banking stocks have benefited from the economic recovery with all the country's leading banks enjoying gains in recent weeks.

Mizuho, Japan's top lender, rose 3.6% to 580,000 yen on Monday while Tokyo Financial Group and Sumitomo Mitsui Financial Group both added more than 2% each.

Although high oil prices presented a potential threat to economic growth, analysts said, they were currently helping the market.