The index has risen 6 percent since late January as investors bet the battered tech sector was close to bottoming out.
Chung Hung Steel Corp, the market's third most active stock, jumped 4.76 percent to T$22.00 and bigger rival China Steel Corp rose 0.28 percent to T$36.20 on hopes that demand and product prices will remain stable this year. The boost of confidence has come from foreign investors who have accumulated nearly T$100 billion (US $3.2 billion) of Taiwan shares since late January, ahead of a scheduled MSCI upgrade in May.
Morgan Stanley Capital International (MSCI) will raise Taiwan's weighting to 100 percent by the end of May 2005 from 75 percent, a move that will trigger more foreign investments.
Investors also snatched up air carriers as analysts said several weeks of historic direct charter flights between Taiwan and China that ended on Sunday could become a permanent link.
China Airlines, the island's largest carrier, finished up 1.13 percent at T$17.90 and rival EVA Airways gained 3.92 percent to T$15.90, helping the transport sub-index 2.40 percent higher.
Direct air links with China, Taiwan's largest trading partner, could lead to other openings and add to the US $100 billion Taiwan firms have already invested in the mainland.
Among other major winners were smaller tech firms whose fundamentals are improving.
For example, mobile phone maker DBTEL Inc surged the daily 7 percent limit to end at T$11.50.
But United Microelectronics Corp (UMC), the world's number-two contract chipmaker, fell 0.49 percent to T$20.30.
However, selling pressure on UMC eased after the firm's chairman denied last week any illegal connections to China's HeJian Technology Co Ltd.
The over-the-counter market's TAISDAQ index jumped 0.54 percent to 119.25, and March TAIEX index futures finished up 0.39 percent to close at 6,144.