Financial Markets : OVERSEAS : Tokyo Stocks Bounce Back; Nikkei Up 3% in Morning

Share prices rebounded sharply on the Tokyo Stock Exchange in early trading today, with the Nikkei index gaining 899.11 points--more than 3%--to finish the morning session at 29,148.17.

The rally came after a day of volatile trading on Thursday in which the Nikkei, an average of 225 stocks, plunged by nearly 1,100 points, then bounced back to close at 28,249.06, down 193.88 points from the previous day’s finish.

“The worst is over,” said Keiji Yasuda, general manager and chief strategist for New Japan Securities Co. “The market has already hit the intermediate bottom. We’re in a rally from now, and it could be a very strong one.”

Investors drew confidence from the news this morning that U.S. and Japanese negotiators had reached an accord on the interim report for the Structural Impediments Initiative talks in Washington, analysts said.

The yen also gained sharply against the dollar in Tokyo foreign exchange trading this morning on speculation that the Group of Seven industrial nations might act to prop up the Japanese currency when finance ministers meet in Paris this weekend.

The U.S. currency opened at 156.90 in Tokyo, down one yen from its close Thursday and considerably lower than its level earlier in the week. The dollar temporarily broke the 160-yen barrier on Monday, when the Tokyo stock market suffered its second-worst single-day loss ever.

Tokyo investors have been jittery since the beginning of the year, as stock prices commenced a downward spiral propelled by worries over a weakening Japanese currency, sagging bond prices and rising interest rates.

On Thursday, rumors that several small Japanese brokerages faced bankruptcy swept the market, prompted by concerns that speculator groups were failing to meet margin calls. Bearishness was fueled Monday by a newspaper report--later denied--that said Japanese life insurance companies were prepared to begin a massive sell-off of stocks.

When the Nikkei dipped below the 28,000-point level this week, share prices had lost some 28% of their value from the market’s historic peak on Dec. 29. Analysts are divided on whether the index has bottomed out at the current level or whether it will continue to sink as Japanese stocks undergo a revaluation of their fundamental strengths.