The key Nikkei stock average on the Tokyo Stock Exchange gained 108.69 points, or 0.7 per cent, to end the session at 16,471.58 points. Tokyo will make an announcement later Thursday on the bank rescue plan.

Brokers said the government's steps towards fixing its badloan mess triggered heavy buying by foreign investors including hedge funds, with the key index rising as high as 16,743.36 at one point. However, the Nikkei index closed near the day's low of 16,433.47, hit by profit-taking on recent gains, but it was still the highest close since mid-April.

``We saw some selling starting to emerge to test the upside. As we moved nearer to the close, the selling turned more intense. Basically, the market has run too fast, so some profit-taking naturally emerged,'' a Yamatane Securities Co Ltd broker said.

``I don't seethat the market's rally has run out of steam, but rather the profit-taking we saw on the day was only natural given the recent rises,'' the broker said. The broader topix index of all first-section issues edged down 0.29 points to 1,270.46.

Trading remained active, with an estimated 920 million shares changing hands against Wednesday's 876.3 million shares. In early trading, share prices were also bolstered by hopes that the ruling Liberal Democratic Party (LDP) may soon decide on permanent tax cuts, brokers said.

But a reported remark by an LDP official that the introduction of a permanent income tax cut was a separate issue to the bridge bank issue pushed stocks and the yen lower in late trading, Asahi Investment Management Co Ltd 's capital management department head Masanobu Sato said.

Profit-taking from dealers and institutional investors turned active in the afternoon, especially as foreign investor buying support slowed, brokers said.

The broker said upside resistance would be strong aroundthe 17,000-point level, which the market found hard to penetrate in February and March, before it turned decidedly lower.

Bank leaders were actively traded as investors adjusted positions ahead of the release of details of the government's bridge bank plan. Most banks declined as traders took profits after opening gains.

Fuji Bank fell 12 yen, or 1.8 per cent, to 648 yen, as Dai-Ichi Kangyo Bank shed 28 yen, or 3.1 per cent, to 867. Long-Term Credit Bank closed steady at 76.