HONG KONG: Japanese shares rose on Friday, lifted by news of a mega merger in the steel sector, while a rebounding dollar put a slight dent in a commodities rally that saw copper hit a record $10,000 a tonne in the previous session.

    Tough competition from steelmakers in China and India, shrinking demand from domestic automakers and rising prices for raw materials such as coal and iron ore prompted Japan's Nippon Steel and Sumitomo Metal Industries to merge to create the world's second-largest steelmaker.

Shares of Nippon Steel and Sumitomo Metal rallied sharply, rising 9 percent and 16 percent, respectively, lifting Japan's Nikkei up 1.1 percent.

"The news will likely raise expectations that more Japanese companies will seriously try to increase their competitive edge in the global market," said Shinichiro Matsushita, a senior market analyst at Daiwa Securities.

"On top of last week's NEC-Lenovo deal, these deals will boost investor sentiment towards Japanese stocks."

The Nikkei has risen 3.1 percent so far this year and is Asia's top performing market as investors continue to favour developed markets over emerging markets that are battling with high inflation and political risk. The MSCI Asia ex-Japan index is up just 0.6 percent.

Australia's key stock index rose 0.9 percent as heavyweighted commodity-related stocks rallied. Most other markets in Asia remained shut for the Lunar New Year holuday and will reopen on Monday.

Many traders were also on the sidelines waiting U S jobs data later in the day and eyeing developments in Egypt after the White House said the United States is discussing with Egyptians a variety of ways of moving to a peaceful transition of power.

Spurred by further signs that the global economy was gaining momentum and speculative buying, copper hit $10,000 a tonne for the first time in London overnight, before easing.

London's Brent oil rose 0.3 percent to around $102 well after hitting a 28-month high above $103 a barrel on Tuesday as violence escalated in Egypt.

Sugar retreated as well after spiking to 30-year tops on Wednesday as a killer cyclone battered Australia's sugar cane fields. Wheat rebounded after a brief decline, staying near the 2008 highs seen in the last session after a snowstorm that paralyzed the U S grain belt.

Surging food prices have come back into the spotlight after they helped fuel the discontent that toppled Tunisia's president in January and spilled over to Egypt and Jordan.

Global food prices tracked by a U.N. agency hit their highest level on record in January.

Markets fear many central banks may have to take more aggressive action to contain growing inflationary pressures, which could dampen global growth.

Weighing on commodity prices on Friday was a rebound in the U S dollar as stronger-than-expected growth in the U S services sector showed a resilient economy.

Rising service-sector activity, improved jobless claims figures and stronger-than-expected retail figures in the U S have raised confidence ahead of Friday's payrolls report that is expected to show the economy adding 145,000 jobs in January.

A strong jobs report could help the dollar extend gains against the euro.

The euro was on the defensive after its more than 1 percent drop overnight after European Central Bank President Jean-Claude Trichet threw cold water on expectations of a rise in euro zone interest rates.

The single currency was trading at $1.3634 by late morning in Asia, moving further away from a 12-week high of $1.3862 set on Wednesday.