Stocks in Japan Rise on Reports of Government Action : Markets: Talk of tax breaks helps the Nikkei average rebound from a decline of nearly 4%.

Japanese stocks rose today in early trading from Monday’s nearly 4% decline as reports in Japanese newspapers raised expectations that the government will announce measures to halt the stock market’s decline, traders said.

The benchmark Nikkei 225-stock average was up 102.11 points, or 0.64%, at 16,180.82 in morning trading today. The broader Topix index of all shares on the Tokyo Stock Exchange’s first section had gained 6.55 points, or 0.49%, to 1,357.03.

The Nikkei average had shed 647.66 points, or 3.87%, on Monday to close at 16,078.71, the Tokyo market’s lowest finish this year. The Nikkei’s lowest close in recent years was 14,309.41 on Aug. 18, 1992.

The Nikkei has shed more than 3,600 points in the past month, as pessimism over the economic outlook deepened in the absence of fresh government moves to stimulate the economy.

But the Nihon Keizai newspaper reported today that the government will propose an income tax cut of more than $46 million as early as January.

The government has also proposed postponing an increase in the consumption taxes for two years and will cover the costs of the income tax cut by selling deficit-financing bonds, the report said.

In addition, the newspaper said the Finance Ministry will delay the listing of Japan Tobacco Inc. until the stock market recovers. The listing, which was to have taken place by March, could depress prices further during the bear market by adding shares to a market with little demand to buy them.

The reports raised hopes that the government will announce some measures to help the stock market, said Ravi Nandigum, a salesman at Baring Securities.

“There’s some small hope that the government could make an announcement about market support,” Nandigum said.

Foreigners were also buying stocks that they believed had fallen to attractively low levels, said Christian Howes, a salesman at Smith New Court.

“There are buyers out there in a more aggressive way,” Howes said. “People are focusing on quality” or companies that promise to show strong earnings in the future, he said.

The rebound may keep the Nikkei 225 above 16,000 today, Nandigum said. Still, there are enough concerns about Japanese banks and other companies to limit the gains and turn prices around again.

Japanese banks have led the market’s declines in the past week. Last week, banks posted dismal earnings, which aggravated concerns about accumulating non-performing loans.

The ratio of projected earnings per share to stock prices for Japanese banks is still well above the average of 85 for other Japanese companies. Most banks still have price-earnings ratios above 100, which is viewed as far too high given the soured loans that banks hold.

Despite repeated government spending packages aimed at boosting demand and record-low interest rates, the economy remains mired in recession.

Japanese manufacturers reported sharp profit declines across the board in their midterm reports at the end of September, and many firms have announced job cuts or cutbacks in production.

“The disappointment is pretty complete,” said Richard C. Koo, senior economist at Nomura Research Institute. “Nothing on the horizon suggests an economic recovery or recovery in corporate profits. There is nothing to look forward to.”