Growing confidence in a Japanese economic recovery injected fresh vigour into the Tokyo stock market yesterday, helping the Nikkei 225 average to close above 10,000 for the first time in a year.

Following last week's holidays in Japan, many investors yesterday had their first chance to react to data released last week showing that gross domestic product (GDP) grew by a real 0.6 per cent in the quarter to June, three times higher than expected.

That represents annual growth of 2.3 per cent, and bolstered the view that Japan's cyclical recovery is proving stronger than expected, driven by exports and higher corporate investment, as well as surprisingly resilient spending by consumers.

The Nikkei rose 1.7 per cent to 10,033, after gains of 4 per cent made in thin trade last week. The rally was led by foreign buyers, several of which have revised their GDP forecasts upwards.

Yesterday, Lehman Brothers, whose estimate was already above consensus, said it expected growth of 2.2 per cent this year - compared with an original forecast of 1.4 per cent - and growth of 1.7 per cent in 2004.

Traders said Japanese institutional investors remained very cautious.

Mr Masahiko Sato, manager of the equity marketing department at Nomura, said: "Capital investment and industrial production in Japan are increasing, but bears are saying the GDP growth can be explained by one-off factors - a rise in tobacco tax and a SARS-related increase in domestic travel."

Stocks in Hong Kong, Singapore and South Korea moved up in line with the Japanese market as hope spread that an upturn in US demand could boost all Asian economies.

The Hang Seng index hit a 13-month peak of 10,525, while Korea's Kospi reached its highest level in eight months and Singapore's Strait Times Index gained 1.8 per cent to close above the psychologically important 1,600 barrier for the first time since July 2002.