Despite a decline in the year's final trading session Friday, the Tokyo stock market's main index surged 40 percent in 2005 amid growing signs the Japanese economy may be on a sustained recovery after a 15-year slump.

The Nikkei 225 index fell 232.77 points, or 1.42 percent, to finish Friday's half-day session at 16,111.43. The broader Topix index of all shares on the Tokyo Stock exchange's first section shed 13.99 points, or 0.83 percent, to 1,649.76.

For the year, the Nikkei gained 40.24 percent — the biggest annual gain since 1986.

Despite the rise, the Nikkei is far below its all-time closing high of 38,915.87 set Dec. 29, 1989. The plunge that followed in the early 1990s contributed to the economy's nearly 15-year downturn.

Trading was also very active this year, with both trading volume and turnover in value terms on the exchange's first section marking record highs. The total market capitalization on the section came to 522.07 trillion yen ($4.46 trillion; 3.76 trillion euros) as of Dec. 30, up 48 percent from the previous year's 353.56 trillion yen worth of turnover.

On Friday, the index fell as investors took profits in issues such as banks, retailers, and machinery markers that led the year's strong rally. The Nikkei rose nearly 1 percent on Thursday to finish at 16,344.20, its highest close since Sept. 20, 2000.

After hovering around the 11,000-point level for the first seven months, the Nikkei gradually gained ground in August, when the benchmark index moved to above the 12,000. It jumped further in September on the back of strong growth in corporate earnings and increasing signs of an economic recovery.

Adding to the upbeat outlook was the government's forecast this week that the economy would pull out of deflation sometime next year, ending the spiral of declining prices that has undercut corporate profits, hurt wages and prolonged the economic slump.

Japan's central bank has kept its low interest-rate policy for four years to help spur a recovery. Lower interest rates make it easier for businesses to borrow money to expand.

Analysts and players remain sanguine about the market's movement ahead.

"I'm generally positive about the market outlook next year, too," said Norihiro Fujito, an investment strategist at Mitsubishi UFJ Securities.

Fujito projects the Nikkei index will see its 2006 peak in May by hitting 18,000. The index may enter a correction phase later in the year and drop to 14,500, Fujito said.

Masayoshi Yano, senior market analyst at Tokai Tokyo Research Center, is more bullish. "It wouldn't be surprising if the Nikkei targeted 20,000 next year," Yano said.

Japan's major think tanks, including Dai-Ichi Life Research Institute, expect an ongoing economic next year. They expect Japan's gross domestic products, which measures the value of goods and services produced in a nation, to grow between 2.4 percent and 2.7 percent this fiscal year which ends March 31, 2006.

The estimates, released last month, are much higher than the government's growth target of 1.6 percent.

Looking back on 2005, the market also saw negative news.

Top executives at the Tokyo Stock Exchange resigned last week following two massive computer system failures, including one that caused massive losses at a major Japanese brokerage house.

Earlier this month, the TSE failed to halt an erroneous order placed by Mizuho Securities C. that cost the brokerage about 40 billion yen ($342 million; 288 million euros). After the botched trade, Japan's financial watchdog agency ordered the exchange to improve its operations. It has until Jan. 31 to report on the measures.

First-section volume fell to 1.073 billion shares on Friday, from Thursday's full-day trading turnover of 1.904 billion shares. Decliners beat advancers 1,222 to 345, with 99 issues unchanged.

Among losers, Sumitomo Mitsui Financial Group Inc. fell 1.63 percent to 1.25 million yen ($10,593.22) and Mitsubishi UFJ Financial Group Inc. fell 1.27 percent to 1.6 million yen ($13,559.32). Machinery maker Fanuc Ltd. lost 3.62 percent to 10,010 yen ($84.83) and Sony Corp (SNE). shed 1.26 percent to 4,820 yen ($40.85) and TDK Corp. fell 1.37 percent to 8,130 yen ($68.90).

In currency trading, the U.S. dollar bought 117.48 yen on the Tokyo foreign exchange market at 5 p.m. Friday, down 0.31 yen from late Thursday. The euro rose to US$1.1864 from $1.1848 from late in New York.

The 10-year Japanese government bond fell to 1.4700 percent from Thursday's finish of 1.5050. Its price rose 0.31 point to 100.26.

Japanese financial markets will be closed from Dec. 31 through Jan. 3 for the New Year's holidays. The markets will reopen on Jan. 4.