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Tokyo stocks close at two-month high

Tokyo stocks finished Monday at a two-month high, adding 1.43 percent after the front-runner to become Japan's next prime minister said he would push for further monetary easing if elected.

The benchmark Nikkei 225 index at the Tokyo Stock Exchange ended up 129.04 points at 9,153.20, while the broader Topix index of all first-section shares rose 1.44 percent, or 10.82 points, to 762.16.

Japan's main opposition leader Shinzo Abe, tipped to become prime minister after a December 16 election, last week called for "unlimited" easing by the Bank of Japan (BoJ), and vowed to strike a deal with the bank over further policy measures.

The comments from Abe, who is also seen by investors as business friendly, has put pressure on the yen as easing tends to weigh on a national currency.

Hopes for political change and measures that would inject new life into the slowing Japanese economy, the world's third-largest, helped boost the Tokyo market, while the weaker yen also lent support, dealers said.

"Active overseas hedge funds have continued to trigger broad-market buying, on enthusiasm over the potential for a political regime change to an ostensibly more business and market-friendly Liberal Democratic Party (LDP)," said Tachibana Securities market analyst Kenichi Hirano.

Abe is tipped to unseat Prime Minister Yoshihiko Noda and his centre-left Democratic Party of Japan as the ruling party's fortunes have sunk in opinion polls.

"Japan stocks remain undervalued, so the current rally may still have legs," Monex market analyst Toshiyuki Kanayama told Dow Jones Newswires.

"With the Nikkei already having broken though its October high, the September high mark of 9,288 is now the target to watch."

Gains were led by exporters, with Canon surging 4.44 percent at 2,817 yen, while Toyota rose 1.35 percent to 3,370 yen and construction equipment maker Komatsu was up 3.42 percent at 1,812 yen.

Japan Tobacco jumped 6.53 percent to 2,411 yen after the government said it would delay selling down part of its stake in the firm owing to choppy markets and a possible political leadership change.

On currency markets, the dollar bought 81.27 yen, against 81.31 yen in New York, while the euro fetched 103.75 yen against 103.60 yen.

The euro bought $1.2764 against $1.2741 in New York.