Tokyo shares rallied Friday as investors cheered robust earnings and a major takeover in the steel sector amid encouraging signs that the U.S. economic recovery may be picking up speed.

Oil prices rose to near $91 a barrel as traders eyed violent street clashes in Egypt and a key U.S. jobs report. In currencies, the dollar slipped against the yen but rose against the euro.

The Nikkei 225 stock average rose 1.2 percent to 10,550.98 while much of the region took a break for the Lunar New Year holidays. Markets in Hong Kong, mainland China, South Korea, Malaysia, Singapore and Taiwan were closed.

Nippon Steel Corp. rocketed 10.5 percent, and Sumitomo Metal Industries Ltd. surged more than 17.6 percent. On Thursday they announced plans to combine their businesses next year to create the world's second-biggest steel maker.

The move is an effort by both companies to stay competitive in the global steel industry and expand into high-growth markets like China and India. The combined company would still be a distant No. 2 behind the world's biggest steel maker, Luxembourg-based ArcelorMittal SA.

Companies that reported bullish earnings Thursday also advanced, including Sony Corp., Hitachi Ltd. and iPhone carrier Softbank Corp.

Financial issues rose after Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, joined the country's two other megabanks in reporting solid nine-month earnings. Its shares rose 1.6 percent, while rival Sumitomo Mitsui Financial Group Inc. climbed 1.3 percent.

Yoshinobu Yamada, an analyst at Deutsche Securities in Tokyo, reiterated his "overweight" stance on the banking sector after the latest earnings reports.

"The market consensus seems to be that the domestic economy in 2011 is on the road to recovery," said Yamada in a report. "If monetary easing is to continue, this would be especially positive for banks."

Elsewhere, Australia's S&P/ASX 200 rose 1 percent to 4,867.70 and New Zealand's benchmark was up 0.5 percent at 3,367.82.

Australian miners benefited from higher gold and silver prices, with Newcrest Mining Ltd. up 2.7 percent. QBE Insurance Group jumped amid relief that Cyclone Yasi caused less destruction than anticipated. QBE shares rose 8.1 percent.

In New York Thursday, stocks posted small gains after Federal Reserve chairman Ben Bernanke said the central bank will stick to its efforts to spur the economy. In a speech at the National Press Club, Bernanke said that the Fed expects the economy to improve this year and inflation to remain low despite the rise in commodity prices.

The comments helped offset some ongoing worries about political unrest in Egypt.

Also Thursday, U.S. retailers reported solid January sales gains despite fears that snowstorms would hurt shopping. Along with two encouraging economic reports — the biggest service sector expansion in five years and a plunge in weekly unemployment claims — the sales figures offered more evidence Thursday that the economic recovery is picking up speed.

The Dow Jones industrial average rose 20.29 points, or 0.2 percent, to 12,062.26.

The broader S&P 500 gained 3.07 points, or 0.2 percent, to close at 1,307.10. The tech-heavy Nasdaq composite rose 4.32 points, or 0.2 percent, to 2,753.88.

In currencies, the dollar slipped to 81.58 yen from 81.63 late Thursday. The euro fell to $1.3629 from $1.3639. The single European currency plunged Thursday after the head of the European Central Bank said long-term inflation in the 17-nation euro region was still in check.

Benchmark crude for March delivery was up 42 cents at $90.96 a barrel in electronic trading on the New York Mercantile Exchange. The contract lost 32 cents to settle at $90.54 on Thursday.


Associated Press writer Tomoko A. Hosaka in Tokyo contributed.