Regional markets extended their rally from last week, led by Tokyo and Hong Kong which surged 5.2 per cent and 5.7 per cent each. Singapore advanced 4.1 per cent, Kuala Lumpur gained 4.6 per cent and Sydney ended 0.4 per cent higher. Manila ended up 3.2 per cent and Seoul strengthened 4.1 per cent.

Dealers said the firm yen, the passage of the first set of crucial bank reform bills in Japan and hopes that the weak dollar would provide breathing space for Asian central banks to lower interest rates spurred on the markets. ``There is a genuine change of sentiment, which could be long term,'' said Prudential Bache Securities regional technical analyst John Schofield in Hong Kong.

``Investors now realise that Asia has got extremely bombed out and they are getting more nervous about the market in Europe and the US,'' he said.He said Asian markets had fallen on the weak yen and high interest rates, `and now those obstacles to buying are removed.' In Tokyo, stocks surged after the upper house of parliament enacted a first setof crucial bank reform bills, rebounding from their lowest level for nearly 13 years.

Investors were also spurred by the hope that ruling and opposition parties would agree on another bill to recapitalise weak but solvent banks with taxpayers' money, brokers said. Banking and property issues gained on the ruling party's plans to set up a huge $430 billion bailout fund of taxpayers money to help weak banks and nationalise collapsed banks.

``Active position covering also emerged following the sharp decline Friday, especially among banks and international blue chips,'' a Universal Securities Co dealer said. The 225-issue Nikkei average climbed 675.04 points to close at 13,555.01. That came after the index tumbled 146.09 points, or 1.1 per cent, Friday to hit its worst level in nearly 13 years, led by heavyselling of international bluechips on the yen's upsurge against the dollar.

The Topix index of all issues on the first section of the Tokyo Stock Exchange also gained 40.84 points to 1,023.34.

Hong Kong share prices shot up 5.7 per cent as regional markets rallied and hopes rose for an interest rate cut, dealers said. Gains were pared by afternoon profit-taking after share prices had rocketed nearly eight per cent in the morning session to breach the 9,000-point psychological barrier, they said. The key Hang Seng index closed up 483.48 points at 8,990.27.

Gains on the US and Japanese stock markets, hopes for lower local interest rates plus a stronger yen against the US dollar all boosted investors' spirits, brokers said. Gary Chang, managing director at Polaris Securities, said the weaker dollar had helped overseas capital flow back into Asia.

``I think the worst is over for the Hong Kong market and money will keep coming Back,'' he said. ``The expectations (of rate cuts) are likely to help themarket maintain strength around 9,000 points,'' said Johnson Hui, research director at Bank of China Group Securities.

Miles Remington of SocGen Securities said there had been a lot more cash flowing into the market, `helped I'm sure in part by a Dow which was strong on Friday' and the Nikkei also rising. ``It is certainly a return of confidence, it's again a suggestion that by the end of the week, we may be looking for lower interest rates,'' the told government radio.

Singapore share prices surged 4.1 per cent on a continuing flow of institutional buying, spurred by firmer regional markets and currencies, dealers said. Traders were willing to take positions as there was relatively low risk because Wall Street is closed for a public holiday Monday, with sentiment also boosted by expectations of interest rate cuts, they added.``Underlying sentiment is still strong. Unless Wall Street comes off over the next few days, there is unlikely to be substantial profit-taking in the local market,'' said adealer with a foreign brokerage.

Property stocks benefited from the gains amid expectations of lower interest rates, which will reduce borrowing cost and jumpstart slow sales, another dealer said. The Straits Times index rose 39.95 points, breaching the 1,000 points level for the first time since early August, to end at 1,016.60 but off a high of 1,039.22. The broader All-Singapore index ended 6.74 points up at 302. 55.

Kuala Lumpur: Malaysian share prices ended 4.6 per cent higher amid local buying support and in tandem with performance of major regional bourses. ``Local investors are back,'' an institutional dealer with a local brokerage said. The Kuala Lumpur Stock Exchange Composite Index ended 17.28 points higher to close at 389.50. The dealer said rises in regional bourses were a positive factor for the local Bourse.

``It did not matter that the rises were due to funds unwinding positions ... It was noticeable that the punters were back on the market. It was a trading market and they sawopportunities to buy,'' he said, adding, ``This is a good sign.''