The Nikkei average rose 0.86 percent yesterday as shares of Sony Corp. jumped after an upgrade by Goldman Sachs, while JFE Holdings Inc. and other steel stocks rebounded from recent falls.

Expectations that the Bank of Japan (BOJ) may raise interest rates at a policy meeting next week helped shares of banks post gains while shares of bridge makers such as Japan Bridge Corp. advanced as investors bet the industry could see consolidation.

?About 60 percent of market participants are expecting a rate hike and that?s why financial stocks are currently being shopped around,? said Toru Otsuka, deputy general manager at Mizuho Investors Securities Co. Ltd.?s investment information department.

Stable foreign exchange rates and commodity prices and strong performance in US stocks encouraged investors to buy back shares, analysts said. The Nikkei climbed 146.18 points to 17,237.77.

The market was closed on the day before for a national holiday, after the Nikkei benchmark booked its largest one-day percentage fall in six weeks on Friday as investors took profits in shares that had logged aggressive gains in a year-end rally. The broader TOPIX index was up 1.00 percent at 1 692.12.

Trade was relatively active, with 2.05 billion shares changing hands on the Tokyo exchange?s first section. Advancers beat decliners by a ratio of nearly three to one.

Attention now focuses on the next BOJ meeting on Jan. 17-18. In the bond market, Japanese government bond futures hit their lowest level in more than two months on concern that the BOJ could raise rates at the meeting.

Junichi Misawa, senior fund manager at STB Asset Management, said the stock market would react negatively in the short term if interest rates are raised, with the yen likely to appreciate against the dollar.

Looking ahead, Misawa said shares of commodity and raw material companies look attractive.

?I would choose stocks that will benefit from the global economic growth. Commodity prices are not performing well lately, but demand remains strong,? he said, adding that steel stocks look attractive despite recent sharp gains.

Sony surged 6.5 percent to 5 550 yen, its highest close since last May, after Goldman Sachs raised its rating on the stock to buy from neutral and lifted the target price to 6 200 yen from 5 150 yen, citing strong Christmas sales and chances of additional restructuring.

Goldman also changed other stocks? ratings, moving their share prices. Pioneer Corp rose 4 percent after Goldman raised it to neutral from sell while Victor Co. of Japan Ltd. (JCV) tumbled 5 percent after the brokerage cut it to neutral from buy.

Steel stocks bought back after recent sharp falls

After the market closed, Seven & I Holdings Co., Japan?s biggest retail group, reported an 11.4 percent rise in nine-month profit on yesterday and maintained its full-year forecast. Prior to the announcement, Seven & I ended up 0.5 percent at 3 850 yen.

Nippon Steel Corp., the world?s third-largest steel maker, rose 3.3 percent to 649 yen after falling 8.2 percent over the previous two sessions. JFE Holdings jumped 4.9 percent to 5 980 yen, snapping three days of decline.

The consumer finance sector, whose subindex IFINS.plunged 30 percent in 2006 to be the worst performer, was back on the radar screens of investors looking for the best bargains.

Credit Saison Co. Ltd. jumped 5.1 percent and Aiful Corp. added 2.7 percent.

Bridge makers rose with Japan Bridge jumping 8.3 percent.

Market participants are betting that Kawasaki Heavy Industries Ltd. could exit bridge building, which could help other players, said Ken Masuda, senior dealer in equities at Shinko Securities.

Kawasaki Heavy said in its midterm business plan in September that it would pull out of any unprofitable businesses. However, it has said that it has not decided whether to leave the bridge business.