Japanese shares rose to 18-month highs on Wednesday, continuing to eclipse their peers elsewhere in Asia, as a rebound in U.S. consumer confidence boosted hopes that a global economic recovery will prove to be sustainable.

Japanese stocks <.MIAPJ0000PUS> have climbed around 8 percent in the January-March quarter, outperforming a roughly 2 percent gain in the rest of Asia-Pacific <.MIJP00000PJP>, as measured by MSCI indexes.

That puts the performance of Tokyo shares on a par with those in Indonesia <.MIID00000PID>, which have been the top performer in MSCI's Asia-Pacific ex-Japan index so far this year.

Healthy buying by foreign investors has supported both Indonesian and Japanese equities this quarter and further gains are expected in the coming months, with Jakarta shares seen buoyed by strong economic growth and improving corporate earnings giving a boost to Tokyo shares.

Improvement in the global economy and world stock markets -- the Dow is nearly back at the level it was when Lehman collapsed -- will mean still further improvement in the Nikkei over the April-June quarter, said Fumiyuki Nakanishi, group manager at SMBC Friend Securities.

Investor sentiment is likely to improve still more from April, when we have things like the Bank of Japan's tankan survey (of business sentiment.) We (the Nikkei) may try 12,000 in April.

In Japan, the Nikkei share average rose 0.3 percent <.N225> and hit an 18-month intraday just below 11,140 on Wednesday. The Nikkei has climbed 5.5 percent in the January-March quarter.

MSCI's Asia-Pacific ex-Japan index dipped 0.2 percent.

Data on Tuesday showed U.S. consumer confidence rebounded in March and U.S. home prices rose in January for the eighth straight month.

Steady buying by overseas investors, who were underweight Japanese equities last year, has contributed to the rally this quarter. Foreign investors have bought a net 1.9 trillion yen ($20.48 billion) worth of Japanese shares so far in 2010, according to government data.

BULLISH ON EMERGING MARKETS

All of the world's major stock indexes are expected to finish the year higher than current levels, Reuters polls showed in mid-March.

Emerging stock markets are again expected to easily outpace their rich world counterparts despite stumbling early in the year.

The S&P 500 <.SPX> could gain 10 percent over all of 2010, outperforming its rivals in Europe which are being dogged by worries about high debt levels in Greece and other parts of the euro zone.

Indonesia's index <.JKSE> has already climbed more than 10 percent this quarter, nearing a record high set in January 2008.

Indonesia has emerged as the next growth story, supported by strong macro indicators, a large domestic market and rising per capita income, Salman Ali at Citi Investment Research said in a recent research note.

Investor expectations are that economic growth will move up from 5.5-6 percent to 7-8 percent, approaching the levels of India/China.

The Australian dollar fell after retail sales there surprised by falling a steep 1.4 percent in February, more than unwinding January's jump and casting doubt on market expectations for an increase in interest rates next week.

The yen fell and hit a three-month low against the dollar as short-term players unwound yen long positions before the Easter holidays.

The dollar rose 0.5 percent to 93.23 yen, having trimmed some gains after rising to 93.35 yen on trading platform EBS, its highest since early January.

The euro held steady at $1.3408.

Oil prices were little changed at $82.34 per barrel, while gold ticked higher to $1,106.20 an ounce.

($1=92.75 Yen)

(Additional reporting by Elaine Lies in Tokyo and Viparat Jantraprap in Bangkok; Editing by Kazunori Takada)

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