Japan's Nikkei average jumped above its 1-year moving average on Monday, boosted by China's move to stimulate growth by cutting the amount of cash banks must hold in reserve but ended short of 9,500, a level where domestic investors are keen to lock in profits.
A likely European approval later in the day for Greece to receive its second bailout after months of political brinksmanship and market turmoil also boosted the so-called "risk-on" mood, with investors picking up riskier assets and cutting back defensive positions.
Nicholas Smith, Japan strategist at CLSA, said the rally had further to go and it was not time to take profits.
"You are not going to get vertigo when you are at the bottom rung of the step ladder. Japan has come down so far. It is absolutely at extreme valuations," he said.
The benchmark Nikkei climbed 1.1% to 9,485.09, breaching its one-year moving average near 9,427 and at point it climbed as high as 9,549.31.
The benchmark Nikkei is up more than 7% this month, taking this year's gain so far to 12.2% supported by a run of strong economic data out of the United States, as well as the European Central Bank's liquidity injection of nearly half a trillion euros and further easing steps by the Bank of Japan.
If the index were to finish the month with the current gains, it would be the best February performance since 1991.
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But some market participants were cautious, saying that the benchmark faces resistance at 9,500.
"Both US and Japanese earnings last quarter were very weak and although there are expectations for upward revisions in the next quarter, it's difficult to price that in at this stage," said Masayuki Doshida, senior market analyst for Rakuten Securities.
"The most ideal situation would be for the Nikkei to tread in this range and consolidate around the 9,500 level for the next month," he said.
The broader Topix gained 1.1% to 819.03.
Trading volume on main board slipped, with 2.42 billion shares changing hands, down from 2.63 billion shares on Friday.
Tokyo Electric Power Co jumped 13% in heavy volume, with a trader citing a Facta magazine report that the government may not effectively nationalise the operator of the Fukushima nuclear plant. There have been similar reports by other Japanese media.
Japan's major exporters were among those heavily traded, with Toyota Motor Corp <7203.T> gaining 2%, while Sony Corp <6758.T> jumped 3.6% and Toshiba Corp added 2.4%.
Equities were also buoyed by a softer yen, which fell to a 6-1/2-month low against the dollar during the session.
Cyclicals were among the best performing stocks of the day, with Japan's sea transport subindex rising more than 4%.
Naomi Fink, head of Japan strategy at Jefferies Japan said, however, that investors could cut back some of their long positions in cyclicals and take a more balanced approach if they were concerned about any sharp correction in the short-term.
"There is a potential for overshoot, certainly. If there is, for instance, a delay in the agreement on a Greek bailout or if there is a bad data point in the U.S., then the market might pull back. There is a merit for some hedging," said Fink.
Some investors also bought the Nikkei volatility index as protection, with the gauge last up 7% on Monday.
China easing
The easing action by the People's Bank of China (PBOC) helped lift Japanese stocks with heavy exposure to the second-largest economy, with the Nikkei China 50 list gaining 1.9%.
Construction machinery firm Komatsu Ltd surged 3.1% and rival Hitachi Construction Machinery Co Ltd climbed 4.6%. Industrial robot maker Fanuc Ltd gained 1.1%.
Steelmakers also received a boost, with Nippon Steel Corp , Sumitomo Metal Industries Ltd ., Kobe Steel Ltd and JFE Holdings Inc were up between 4.6 and 8.4%. Credit Suisse also lifted target prices for the four companies and remained "overweight" on the sector.
Trading firm Mitsubishi Corp jumped 4.8% after it agreed to buy a 40% stake in the Cutbank Ridge gas field in the Canadian province of British Columbia, operated by Encana Corp .
A Goldman Sachs upgrade to "buy" from "neutral" also raised the appeal of Mitsubishi Corp.