Nikkei hits 3-wk high as gains in U.S. stocks reassure

                                
 * Nikkei rebounds, erasing Friday's loss, as yen weakens
                                
 * Market pricing in U.S. rate hike possibility -strategist
                                
 By Aiko Hayashi
                                
 TOKYO, Feb 22 (Reuters) - Japan's Nikkei average jumped more
than 3 percent to a three-week high on Monday, reassured by gains
in U.S. shares after investors took the Federal Reserve's
discount rate hike as a sign that the financial system is
healing.
                                
 The surprise increase in the discount rate had pushed Tokyo
shares lower on Friday on concerns that overseas markets would
interpret the move as harbinger of faster-than-expected rate
rises.
                                
 Sony Corp <6758.T> and other exporters climbed as the dollar
edged higher against the yen, extending gains made last week
after the Fed's move. Trading house Mitsui & Co <8031.T> and
other resource shares rose on a rebound in commodities prices
that had fallen sharply on the discount rate hike.
                                
 "A rebound in futures, which had pushed down Japanese stocks
on Friday, is buoying the market after European and U.S. stocks
held their ground," said Masaru Hamasaki, a senior strategist at
Toyota Asset Management.
                                
 "The possibility of rate hikes in the United States is
becoming more realistic, but fundamentals have been improving
little by little and the market is factoring in the possibility
relatively smoothly."
                                
 The benchmark Nikkei <.N225> rose 2.6 percent to 10,386.31,
after earlier rising as much as 3.2 percent to 10,449.75, its
highest since Jan. 28. The index lost 2.1 percent on Friday.
                                
 The broader Topix <.TOPX> rose 2.2 percent to 908.83.
                                
 The U.S. dollar inched up 0.1 percent to 91.60 yen <JPY=>
from late on Friday when it rose as high as 92.16 yen, its
highest since early January. Investors welcome a weaker yen as it
boosts exporters' profits when they are repatriated.
                                
 The Fed said late on Thursday that it would raise the
interest rate it charges banks for emergency loans to 0.75
percent from 0.5 percent, taking a step towards normalising
emergency policy used to fight the worst financial crisis since
the Great Depression.
                                
 But the U.S. central bank also said the move did not signal
any change in the outlook for the economy or for monetary policy,
and left its benchmark interest rate unchanged near zero.
                                
 The Shanghai stock market <.SSEC> was almost unchanged after
returning from a week-long holiday for the Lunar New Year.
                                
 Investors were eager to see how shares responded to China's
surprise hike of bank reserve requirements on Feb. 12, though
some market players said the action had been factored in.
                                
 EXPORTERS LEAD
                                
 Recall-hit Toyota Motor Corp <7203.T> rose 1.8 percent to
3,360 yen on short-covering and despite a July 2009 company
document that showed it was aware of sudden acceleration
complaints.
                                
 The document, obtained by Reuters, seems sure to add to the
debate about whether Toyota missed or ignored red flags about a
rising number of complaints. [ID:nN21170965]
                                
 Toyota President Akio Toyoda will appear before the U.S.
House Committee on Oversight and Government Reform on Wednesday.
                                
 "What we're seeing today is basically just Toyota erasing
Friday's losses ... ," said Nagayuki Yamagishi, a strategist at
Mitsubishi UFJ Securities.
                                
 "But gains will be capped by market wariness ahead of
Toyoda's testimony later this week, and fears that this problem
likely will drag on."
                                
 Among other exporters, Canon Inc <7751.T> climbed 3.8 percent
to 3,845 yen and Sony Corp <6758.T> advanced 3.2 percent to 3,195
yen. Kyocera Corp <6971.T> added 3 percent to 8,290 yen.
                                
 Shares of Nikon Corp <7731.T> climbed 3.6 percent to 2,037
yen after the head of its camera division said the company is
likely to beat its digital camera sales forecast for the
financial year to March on strong demand in China and other parts
of Asia. [ID:nTOE61I054]
                                
 Bridgestone Corp <5108.T> gained 3.1 percent to 1,505 yen
after Japan's largest tyremaker reported a surge in quarterly
profit after government incentives boosted car demand, though it
forecast slower-than-expected growth this year as it faces high
materials costs. [ID:nTOE61I04M]
                                
 Resource-linked shares gained after oil prices rose to a
six-week high above $80 a barrel and copper touched a three-week
high on Friday, with other metals gaining as well. [O/R]
[ID:nLDE61I10N]
                                
 Mitsui & Co rose 3.6 percent to 1,400 yen and fellow trader
Marubeni Corp <8002.T> advanced 3.7 percent to 535 yen. Oil and
gas field developer Inpex <1605.T> climbed 1.8 percent to 684,000
yen.
  (Additional reporting by Elaine Lies; Editing by Joseph
Radford)