US oil prices slid to below $47 in Asian trade on Monday after the Organisation of Petroleum Exporting Countries (OPEC) agreed at the weekend to keep crude output unchanged for now and after Iraq's elections passed without disruption to oil exports.
The decision relieved investors who had feared supply concerns would push oil prices higher and hurt corporate profits and consumer spending, analysts said.
"After seeing the drop in oil prices, investors are growing optimistic that oil money will now target Japanese equities, especially those companies with bright business prospects," said Terushi Hirotama, head of trading at Ichiyoshi Securities.
"A 25 basis point hike in US interest rates (at a US Federal Reserve policy meeting on February 1-2) is also widely expected and investors are now betting on a higher start on Wall Street," said Hirotama.
Trading was active, with 1.584 billion shares changing hands on the first section, compared with Friday's 1.563 billion and the average daily volume in January 2004 of 1.40 billion.
Gainers outnumbered decliners 1,080 to 386.
Office machine maker Canon climbed 2.5 percent to 5,400 yen after it posted a 17 percent rise in its quarterly operating profit on Friday on strong sales of colour copiers, laser printers and digital cameras, and forecast record earnings for a fifth straight year.
Honda Motor Co gained 2.1 percent to 5,430 yen after the company, though reporting a drop in quarterly operating profit, lifted its full-year forecasts on Friday thanks to strong European and Asian sales.
Toyota Motor Corp, which on Monday said will boost output capacity at its Thai truck plant by 20 percent at the end of next month to meet brisk demand, jumped 1.3 percent to 4,030 yen.
Takara Holdings Inc soared 11 percent to 886 yen after its bio venture subsidiary Takara Bio Inc at one stage rose by its daily limit for the sixth straight session to a record intraday high of 822,000 yen. Takara Bio ended up 8 percent at record closing high of 780,000 yen - more than triple its debut price on the Mothers market for start-ups on December 7.
"It seems foreign investors have begun buying a wide range of value stocks and such buying will likely support the Tokyo market for a while," said Takashi Kamiya, chief strategist and asset allocator at T&D Asset Management.
"The biggest concern over the market's mid-term perspective, however, is how the Fed handles monetary policy. If they keep hiking the funds rate ... say far above 3 percent, that would discourage buying of global equities," he said.
After the closing bell, Toshiba Corp reported a 93 percent fall in quarterly operating profit and cut its annual operating profit target by 16 percent, hit by price declines in microchips used in digital electronics goods such as flat panel TVs. The move followed similar cuts by other tech firms including Sony Corp and Fujitsu Ltd.
Toshiba's shares closed down 1.2 percent at 419 yen. Earlier, the Nihon Keizai newspaper had said Toshiba would likely post an 8 percent fall in group operating profit for this business year.
Fujitsu sank 2.9 percent to 602 yen. Sony rose 1.1 percent to 3,840 yen, although its shares are still down 2.8 percent since January 20, when the consumer electronics company slashed its profit estimate for the year.