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TOKYO-- The boom in the Japanese mutual fund industry has been one of the main things holding up the Tokyo market of late, and Wednesday was no exception: The debut of several new funds this week helped to erase midday losses brought on by another corporate failure and the unwinding of cross-shareholdings among big firms.

Reports that two oil refiners were in merger talks also boosted shares late in the day, as the market hoped to see more consolidation of Old Japan in the coming months.

The

Nikkei 225

stock index finished up 231.35, or 1.2%, at 19,599.18, while the

Topix

index, comprising shares listed on the

Tokyo Stock Exchange's

first section, climbed 0.98 to 1691.12. The

Jasdaq

small-cap index fell 1.60, or 1.3%, to 119.46, while Nikkei

over-the-counter

shares climbed 3.55 to 2488.24.

Stocks were dealt another blow late Tuesday when housing developer

L Kakuei

collapsed. This followed news over the weekend of the financial failure of super-market operator

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Nagasakiya

, and news that bankruptcies in January soared 43.7% vs. the same month in 1999.

Institutional investors were busy locking in profits in large tech and telecom stocks from the outset, with

Sony

(SNE) - Get Sony Corp. Report

sliding 110 to 27,900,

Matsushita Electric Industrial

(MC) - Get Moelis & Co. Class A Report

slipping 55, or 1.8%, to 2945, and

Nippon Telegraph and Telephone

(NTT)

down 20, or 1.3%, to 1560. Some of the sales were tied to the unwinding of cross-shareholdings by institutional investors to book profits before the March 31 fiscal year-end, while others were by foreign investors.

"Although I want to believe hedge funds wouldn't be covering their losses made in the U.S. or Europe by selling Japanese shares, I wouldn't be surprised at this point," said one trader at a German house, referring to reports of big losses on world bond markets in recent weeks.

Bank shares, which had tanked by an average of 5.2% on Tuesday, were mixed. Approval of the Tokyo metropolitan government's new tax on large banks has had investors piling out of the banking sector for the last week. Some Liberal Democratic Party officials have hinted that the central government may want to intervene to halt the tax.

Despite all the negativity, the start of several new mutual funds had retail investors picking up some of the pieces Wednesday, hoping to pile into stocks that will also appeal to fund managers.

Reports that oil refiners

Tomen

and

Gernal Sekiyu

were merging helped shares across the board late in the day. Before the TSE suspended trading, Tomen rose 53 to 703, while General Sekiyu gained 12 to 181.

On strong earnings results for the October-December period,

TDK

(TDK)

jumped 1000, or 10.5%, to 10,490, while

Honda Motor

(HMC) - Get Honda Motor Co. Ltd. Report

climbed 110, or 3.0%, to 3810.

Meanwhile, the greenback closed stronger at 109.10 yen in Tokyo trading, buoyed by reports that the governing Liberal Democratic Party was mulling a new tax plan.

The Nihon Keizai Shimbun

newspaper said a new system, which could be implemented in April 2001, would tax companies on the basis of sales or the size of capital, instead of income. That could mean higher corporate tax bills.

Hong Kong's

Hang Seng

index climbed 358.58, or 2.2%, to 17,046.74, thanks to rising bank shares led by

HSBC

(HBC)

. The stock rose 5.550, or 6.3%, to 93.250, after an unsourced report in the

Hong Kong Economic Journal

that suggested America's

Citigroup

intends to buy out HSBC.

Speculation on which firm may bid for

Cable & Wireless HKT

(HKT)

continued, with talks today surrounding

China Telecom

(CHL) - Get China Mobile Ltd. Report

. Market rumors said that China Telecom, down 1.250, or 2.0%, to 62.000 and Australia's

Telstra

(TLS) - Get Telos Corporation Report

may join a consortium led by

Pacific Century Cyberworks

, which aims to break up merger talks between C&W HKT and

Singapore Telecommunications

. PCC closed down 1.050, or 4.0%, at 25.300, while C&W HKT fell 0.400, or 1.6%, to 24.150.

Korea's

Kospi

index fell 0.20 to 879.50.