The Japanese market rallied this morning after yesterday's 5 per cent fall of the Nikkei. However, despite this morning's gains, dealers were concerned about the volatility in the Tokyo markets.

The Nikkei average of 225 leading shares tumbled 5 per cent to 15,745.65, yesterday, with financial shares among the worst hit.

But at early opening this morning it had surged by more than 4 per cent, cheered by media reports that an ex-prime minister had asked Prime Minister Ryutaro Hashimoto to consider using public funds to help ailing banks.

After 41 minutes of trade, the Nikkei 225 average soared by 682.91 points or 4.31 per cent to 16,525.37, reversing its steep fall of 884.11 points yesterday. The fall, yesterday, was triggered in part by the early denial from Mr Hashimoto of reports that he planned to use public funds to help restore Japan's banks and brokers to financial health.

Shares of Yamaichi Securities, the country's fourth-largest brokerage firm, had tumbled nearly 50 per cent from their Tuesday close to 58 yen before recovering to Y65 at yesterday's close, amid renewed speculation about the troubled firm's future.

The drop left the group trading at 18 per cent of its book value. Mr Edwin Merner, of the Atlantis fund management group, said: "Any company with a share price below Y100 is a candidate for bankruptcy."

Compounding the confusion, the Bank of Japan said it was still considering aid to troubled financial companies.

But Mr Merner said: "The market reaction is a vote of no-confidence in the Japanese government's financial policy - there is a real lack of co-ordination."

Fuji Bank, which has been traditionally affiliated with Yamaichi, pledged it would support the group, but its shares also fell yesterday by the permitted maximum of Y100 to close at Y813.

Investors pointed out that Fuji could ill afford to provide assistance. The bank yesterday announced large provisions to cover bad loans, predicted it would post net losses of Y440 billion (£3.46 billion) in the year to next March 31st, and omitted its halfyear dividend.

Sanwa Bank, which also announced profits had fallen in the first half of the year, said it expected a full-year loss of Y350 billion - for similar reasons.

The other leading banks are due to report half-year results in the coming days. Analysts expect them to report large losses because of bad loans. Goldman Sachs estimates, for example, that losses for Japan's top 20 banks will total Y12,400 billion over two years.

Meanwhile, Japan's trade surplus in October surged 139.7 per cent from a year earlier to 1.107 trillion yen (£73 billion), widening for the seventh consecutive month, the finance ministry said this morning.

Exports in the month increased 17.3 per cent from a year earlier to Y4.648 trillion while imports edged up 1.2 per cent to Y3.541 trillion, the ministry said.

Imports grew for the 42nd consecutive month, but showed the lowest year-on-year rise since July 1994, when imports rose 0.3 per cent.