Japan's Nikkei average reached its highest closing level in 32 months on Tuesday after a jump in the dollar against the yen triggered buying in Sony Corp and other tech shares.
The dollar rose to 107.25 yen a two-week high, before edging down to around 106.00 yen.
Investors piled into the market mindful of earnings announcements by major firms starting soon for the 2003/04 business year, expecting the results will show solid profit growth and push up share prices.
"The stock market won't move on earnings results unless there are positive surprises," said Akio Yoshino, general manager at SG Yamaichi Asset Management, who expects the recent bull run to peak in June.
"It's better to buy stocks now by choosing laggards than wait until actual earnings are out," he added.
The Nikkei closed up 1.02 percent at 12,079.70, ending above 12,000 for the first time since August 8, 2001.
The broader TOPIX index was up 0.85 percent at 1,209.44, also its highest close since August 2001.
The dollar's jump helped Sony to return to positive territory, and it ended up 0.44 percent at 4,520 yen.
Electronics conglomerate Fujitsu Ltd also recovered after being hit by profit-taking to end up 0.29 percent at 689 yen.
Bank shares gained ground, with the banking index rising 4.69 percent, the best performer of any sector.
Japan's largest banking group Mizuho Financial soared 6.83 percent to 485,000, the highest since the beginning of the year. UFJ Holdings also rang up a hefty 6.28 percent gain to 711,000, its highest since May 2001.
Traders said bank shares got a lift on Tuesday from Goldman Sachs fair values estimates for major banks, issued on Monday. Goldman said it saw fair value for Mizuho at 613,000 yen and for UFJ at 1.09 million yen.
Shares of retailers came under profit-taking pressure as they unveil their earnings results and forecasts later this week, and investors are looking for evidence that consumer spending is on a recovery track.
Aeon Co, Asia's No 2 retailer which on Wednesday opens the earnings reporting season for major retailers for the year ended February 29, sagged 2.18 percent to 4,490 yen.
Asia's top retailer Ito-Yokado Co fell 1.71 percent to 4,610 yen.
Notable losers hurt by profit-taking included Sompo Japan Insurance, which slipped 2.06 percent to 1,094 yen, and builder Kumagai Gumi Co, down 5.31 percent at 232 yen.
Turnover on the first section of the Tokyo Stock Exchange exceeded two trillion yen ($19.02 billion) for the first time since March 12, when trade became active due to the special quotation (SQ) for settlements of futures and options contracts on the Nikkei average. SQ usually leads to higher volume and greater volatility.
Trade volume increased, with 2.128 billion shares changing hands on the first section - the highest since March 12 - up from 1.76 billion shares on Monday.
Advancers outnumbered decliners 844 to 609.
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