11/13/2011 10:12 EST | Updated 01/13/2012 05:12 EST

Asia stocks rise as new leaders in Greece, Italy take steps to manage debt crisis; Japan grows

BANGKOK - Asian stocks rose sharply Monday after Japan's economy grew for the first time in four quarters and Europe moved closer to resolving a debt crisis that threatens to hurl the region into recession.

The Nikkei 225 index in Tokyo rose 1.2 per cent to 8,617.03. Hong Kong's Hang Seng surged 2.2 per cent to 19,552.55 and South Korea's Kospi added 2 per cent to 1,901.05. Benchmarks in Singapore, Australia, and mainland China were also higher.

Hopeful signs emerged over the weekend from Italy after Premier Silvio Berlusconi reluctantly bowed to market pressure and resigned. His successor, economist Mario Monti, faces the monumental task of enacting profound reforms aimed at preventing Italy from defaulting on its huge debts.

Unlike Greece, Portugal and Ireland — which have received emergency financial help from international lenders — Italy is considered much too big to bail out. Its next government must push through austerity measures to deal with €1.9 trillion ($2.6 trillion) in debt.

Investment confidence was also boosted after Japan released data showing its economy — horrifically shaken from a record earthquake in March — had surged in the latest quarter.

The economy surged 6 per cent in the latest quarter, the first expansion for the world's No. 3 economy in four quarters. It comes as Japan claws its way out of a crisis stemming from an earthquake and tsunami that decimated factories across the country's northeast on March 11.

Since then, the country has steadily restored its factories, helping the economy rebound despite the threats of a financial crisis in Europe, slowing global economy and a strong yen.

In Greece, there was good news Friday, as former central banker Lucas Papademos was sworn in as interim prime minister following a political crisis that jeopardized the country's ability to continue receiving emergency loans.

Papademos must now get his government to agree to a debt deal that will net the country billions of euros in acutely needed rescue money — provided that it enacts painful austerity measures including tax hikes and sharp cuts in public spending.

Without the rescue money, Greece's faces insolvency and a massive default on its debts — an event that experts believe would set off a regional banking crisis and eventually blow up into an all-out European recession.

On Wall Street, stocks surged Friday after Italy and Greece moved closer to getting their financial crises under control.

The Dow Jones industrial average jumped or 2.2 per cent to 12,153.68. The S&P 500 rose 1.9 per cent to 1,263.85. The Nasdaq composite rose or 2 per cent to 2,678.75.

Uncertainty still hangs over financial markets, however, as traders await U.S. economic data. Reports on October retail sales, inflation and housing data are due this week, starting Tuesday.

Despite its 2.5 per cent growth rate last quarter, the U.S. economy remains fragile. The Federal Reserve recently lowered its economic outlook for 2012. The central bank predicted that the economy will grow at a rate of about 2.7 per cent next year. That is a full percentage point below a forecast from June, and below the 3 to 5 per cent annual growth rate that is considered healthy.

Benchmark crude for December delivery was up 9 cents at $99.08 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.21 to settle at $98.99 in New York on Friday.