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TOKYO, Dec 21 AFP

December 21 2012, 8:59PM

Tokyo shares surged again this week as investors cheered Japanese national elections last weekend that brought the business-friendly Liberal Democratic Party back to power in landslide polls.

The benchmark Nikkei 225 index closed above the 10,000 level for the first time in more than eight months on Wednesday, following the conservatives' electoral victory.

Sunday's election results sparked a three-day rally on the Nikkei as incoming prime minister Shinzo Abe, the LDP's hawkish head, stepped up pressure on the Bank of Japan (BoJ) for more aggressive monetary easing steps.

Japan's government-in-waiting also said it would launch a huge spending package worth about $US118 billion ($A113 billion) aimed at injecting life into the nation's limp economy, which may have slipped into recession in the third quarter.

For the week to December 21, the Nikkei rose 2.08 per cent, or 202.50 points, to 9,940.06, after gaining 2.21 per cent the previous week.

The broader Topix index of all first-section shares soared nearly four per cent, or 31.68 points, to 832.72, also adding to week-earlier gains.

Markets largely shrugged off Japan's disappointing November trade data, but the upward momentum stalled from Thursday on profit-taking and after talks on the US fiscal cliff dragged on with no new spending deal in sight.

Also Thursday, the BoJ ramped up its offensive to power the world's third-largest economy by expanding an asset-buying program - its main policy tool - by 10 trillion yen ($A114.00 billion) to 101 trillion yen.

"Foreign investors continue to buy up the market, mainly on hopes that the incoming government will provide robust economic stimuli and move to accelerate monetary policy easing," Yoshihiro Okumura, general manager at Chibagin Asset Management, told Dow Jones Newswires.

Earlier in the week, Toyota shares hit their highest level this year on a weaker Japanese currency and after a report that said the firm was on track to retake the title of world's biggest automaker in 2012.

Shares in nuclear energy firms, including Fukushima operator TEPCO, soared as investors bet that Japan's new government would shelve any short-term plans to phase out atomic power after last year's crisis, the worst nuclear accident in a generation.

Markets will keep a close eye on developments in Washington's budgetary impasse, with some exchanges closed next week for the holidays.

Investors are also looking ahead to a batch of US and Japanese economic data later in the week as the new government in Tokyo assumes power.