Asian stocks rose on Monday, gaining 2.5 per cent as Microsoft Corp's US$45 billion (S$63.6 billion) bid for Yahoo and China's purchase of a stake in takeover target Rio Tinto boosted investor optimism over share valuations.

But Japanese government bond futures fell more than half a point as a 2.7 per cent jump in Tokyo's Nikkei weakened appetite for safe-haven debt.

Stocks shrugged off the economic news, taking the huge M&A deals as a sign that there was more value in some stocks than had been thought. Stock markets around the world have taken a beating this year on fears that a US slowdown and a credit crunch would hit company earnings and bring large takeover deals to a halt.

'People were getting sceptical about big deals due to a spreading credit market crunch, so a possible M&A of top global companies is helping shore up investor confidence,' said Mr Kim Joong-hyun, an analyst at Goodmorning Shinhan Securities in Seoul.

MSCI's All Country index, which was up 0.4 per cent by 0306 GMT, is still down more than 6 per cent this year.

Shares on Wall Street rose on Friday, with the Nasdaq recording its best weekly jump in 18 months as technology shares rallied on the Yahoo bid.

Another sentiment boost came from plans by a group of large banks' joint effort to shore up Ambac Financial Group, a large bond insurer battered by the credit crunch.

KUALA LUMPUR
Malaysian share prices rose 1.9 per cent on Monday tracking gains across Asian markets after Friday's rally on Wall Street fueled by a cut in interest rates, dealers said.

'The Malaysian bourse is in a recovery trend and that may last for a couple of days with a pre-Chinese New Year rally now coming into the picture,' said Tee Sze Chiah, analyst at Aseambankers Investment Bank.

Malaysians will celebrate Chinese New Year on Feb 7 and 8.

The Kuala Lumpur Composite Index closed up 26.41 points at 1,419.66 on volume of 869.33 million shares worth 2.19 billion ringgit (US$678 million).

Advancers beat decliners 567 to 201, with 222 stocks unchanged and 366 untraded.

At the close, the Malaysian ringgit was quoted at 3.2285/2305 against the US dollar.

HONG KONG
Hong Kong share prices closed sharply higher on Monday, up 3.8 per cent, amid a rebound in Shanghai and positive sentiment from a strong Wall Street and Asia showing, dealers said.

The Hang Seng index closed up 908.50 points at 25,032.08, off a low of 24,728.50 and a high of 25,101.41. Turnover was HK$117.62 billion (US$21.3 billion).

The Shanghai bourse's benchmark index finished up 8.13 per cent Monday - its biggest gain in two and a half years - after China's securities regulator approved two new stock funds, ending a five-month freeze on creation of such products.

Mainland banks were up on hopes authorities will hold off on monetary tightening measures in the wake of damage caused by snowstorms, while cement and infrastructure-related firms surged on expected benefits from reconstruction work in China.

The Hong Kong bourse will have a half-day session on Wednesday and be shut on Thursday and Friday for the Chinese New Year.

'The strong performance of Shanghai, Tokyo and other Asian markets, coupled with Wall Street's gains on Friday, encouraged buying of stocks,' said Patrick Yiu, associate director at CASH Asset Management.

'The A-share market's sharp gains helped boost sentiment toward H-shares, many of which outperformed,' he said. 'It's heartening to see healthy turnover even if trade this week is only for two and half days,' he said.

Mr Yiu said that despite Monday's strong gains, the market's direction for the next two sessions is uncertain. He noted that China markets will have a long holiday while worries also linger over the US economy.

The mainland bourses will be shut Feb 6-12 for the Lunar New Year.

SHANGHAI
Chinese share prices were sharply higher in Monday morning trade, jumping 6.23 per cent on news the securities regulator has approved two new stock funds, dealers said.

The benchmark Shanghai Composite index, which covers both A and B shares, ended the morning up 269.35 points at 4,590.12.

The Shanghai A-share Index was up 282.63 points or 6.23 per cent to 4,817.20, and the Shenzhen A-share Index added 87.51 points or 6.53 per cent to 1,426.97.

TOKYO
Japanese share prices closed up 2.69 per cent on Monday in the wake of Wall Street's gains on Friday triggered by Microsoft's huge bid for Yahoo, dealers said.

The Tokyo Stock Exchange's benchmark Nikkei index rose 362.54 points to 13,859.70. The broader Topix index of all first-section shares finished up 27.86 points or 2.08 per cent at 1,364.72. -- AFP, REUTERS