Improving earnings prospects also comforted markets.

Japan's Sony surged 9 per cent a day after it issued a surprisingly upbeat operating profit forecast despite the challenges posed by a slowing US economy and a stronger yen.

Oil prices retreated from record levels, easing some of theinflation fears that have hit Asian stocks this month, and encouraging investors to sell their safe bond holdings to bet on riskier assets.

'There is certainly positive momentum in the market,' said Ms Lucinda Chan, division director at Macquarie Equities in Sydney.

'I think that despite all the uncertainty, these are often very good times for investments and people are beginning to sense that mood now,' she said.

A rally in Asian stocks last month fizzled when May started with it a surge in oil prices to record highs that reinforced fears the world economy could face a crippling combination of high inflation and meagre growth.

The MSCI index for Asian stocks outside Japan rose 0.5 per cent as of 10.15am Singapore time, up some 18 per cent since the mid-March lows but down about 7 per cent for the year.

The gains matched Walls Street's advance after data on Wednesday showed US consumer prices rose a 0.2 perncent in April, less than expected.

That is expected to give the inflation-wary Federal Reserve more latitude to keep US interest rates low at 2 per cent as it seeks to support the national economy and calm financial markets.

SHANGHAI
Chinese share prices closed down 0.55 per cent on Thursday, led by banks, as investors booked profits after a significant rebound in the previous session, dealers said.

Agricultural and medicine stocks also tumbled on profit taking, although power firms rose sharply on expectations of government support for reconstruction needs following Monday's major earthquake.

The benchmark Shanghai Composite Index, which covers A and B shares, closed down 20.11 points at 3,637.32 on a turnover of 112.6 billion yuan (S$22.2billion)

The Shanghai A-share Index was down 21.24 points or 0.55 per cent at 3,816.50 on turnover of 112.2 billion yuan. The Shenzhen A-share Index fell 6.56 points or 0.55 percent at 1,191.00 on turnover of 59.6 billion yuan.

TOKYO
The Nikkei share average rose 0.9 per cent to a four-month closing high on Thursday, led higher by growing market reassurance symbolised by Sony, which soared 8.7 per cent after forecasting a higher profit than expected.

Nippon Steel surged after a report that Toyota Motor has agreed with it and other top Japanese steelmakers to pay more than 30 per cent more for sheet steel, while bank shares - sold recently - powered higher after a report that no. 2 bank Mizuho Financial Group plans an effective 10-for-1 stock split.

The Nikkei rose 133.19 points to 14,251.74, its highest close since Jan 10, for a fourth straight day of gains. The broader Topix was up 1.4 per cent at 1,392.87.

KUALA LUMPUR
The Kuala Lumpur Composite Index (KLCI) closed up 6.52points, or 0.50 per cent at 1300.67.

HONG KONG
Hong Kong share prices closed down 0.08 per cent as continued profit-taking in select large-caps was offset by gains expected from reconstruction work for quake-stricken Sichuan, dealers said.

The Hang Seng index closed down 19.77 points at 25,513.71, off a low of 25,208.22 and a high of 25,736.56. Turnover was HK80.16 billion (S$ 14.1billion )

Bank of East Asia rose 3.39 per cent after Goldman Sachs upgraded the Hong Kong bank to 'buy' from 'neutral' on brighter earnings prospects.

Hutchison Whampoa surged more than 5 per cent following a Citigroup upgrade, while mainland internet firm Tencent, which joins the blue chip index on June 10, surged nearly 8 per cent after reporting strong first-quarter results. -- REUTERS, AFP