A 5 percent surge in Japan's Nikkei average led a charge in Asian stocks on Friday, propelled by increasing confidence in the financial sector stemming from hopes that large U.S. banks will survive without a government takeover and may even profit.

The Swiss franc fell to a near three-month low against the euro after its biggest ever one-day drop against the single currency on Thursday on news the Swiss National Bank sold francs to halt deflation, a move that left some analysts wondering if this was the first shot in a currency war for trade competitiveness.

Citigroup Inc told Reuters the bank does not need any more emergency cash from Washington and expects to stay private, while Bank of America said it was profitable in January and February, easing fears about further instability in the banking industry and sparking a rush back into equities.

The economic situation seems to be better than what people were saying at the beginning of the year -- a view that has come about now that it seems that U.S. banks' earnings may not be atrocious, said Masaru Hamasaki, senior strategist at Toyota Asset Management in Tokyo.

Yet for every piece of news that improved investor confidence, there was another that left questions about the sustainability of the market rebound.

For example, Wall Street chalked up its best three-day run since November after Standard & Poor's raised its outlook on General Electric Co's credit ratings to stable from negative, though it stripped the company of its AAA status.

On the other hand, Berkshire Hathaway , Warren Buffet's conglomerate, lost its AAA rating and has a negative outlook from Fitch Ratings.

Tokyo's Nikkei <.N225> led the charge in Asia, climbing 4.9 percent, and was well on its way to the biggest weekly gain of the year. Shares of large Japanese banks were outperformers, with Mitsubishi UFJ Financial Group <8306.T> up more than 6 percent.

The MSCI index of Asia Pacific stocks outside Japan <.MIAPJ0000PUS> rose 3.1 percent, maintaining this week's up trend and hitting its highest level in about two weeks.

The materials and financial sectors were the biggest boosts.

Bank stocks were also the prime movers behind the 3.8 percent rise in Hong Kong's Hang Seng index <.HSI>. HSBC <0005.HK> rose 3.7 percent, as investors bought back the beaten down shares after an $18 billion rights issue.

Comments from Bank of America, Citigroup and JPMorgan this week have put downward pressure on the most widely watched gauge of market volatility, the Chicago Board Options Exchange's volatility index, or the VIX.

The index <.VIX> closed just above its 200-day moving average on Thursday, and has not closed below it since September 2008.

AFTER SWITZERLAND, IS JAPAN NEXT?

While equity markets were buzzing about banks, currency markets were focused on the aftermath of unexpected actions taken by the Swiss National Bank, as more central banks turned to unorthodox measures to support their economies.

The Swiss National Bank stunned markets overnight with intervention to weaken the Swiss franc, an interest rate cut and plans for outright purchases of franc-denominated debt as it forecast a deep recession.

The policy change was the first intervention in currency markets by an advanced economy since the financial crisis broke out in the summer of 2007 and marked a new chapter in a global fight against the rising threat of deflation.

The euro stood up 0.4 percent on the day against the Swiss franc to 1.5380 francs, near a three-month high. The U.S. dollar climbed 0.3 percent to 1.1888 francs.

The dollar was steady against the yen at 97.56 yen.

The SNB's move has also started a guessing game of which country might follow suit.

The most obvious candidate for combining quantitative easing with intervention in the FX markets is the Bank of Japan, simply because the BoJ has the historical precedent of intervening in the past, UBS currency strategists said in a note.

But Masahiro Sato, joint general manager of the treasury division at Mizuho Trust & Banking Co., doubted Japan would intervene to weaken the yen.

Competitive currency devaluation is not likely in Japan now because the risks of sparking trade friction are too great, Sato said.

The Swiss can get away with this because of the relatively small size of their economy and the limited role they play in the global economy.

Gold prices slipped in the spot market to $924.35 an ounce, as dealers took profits on the 2 percent rise overnight. However, concerns that more central banks will intervene to weaken their currencies as well as the continued buildup of holdings in the world's largest gold exchange traded fund, suggested a rising price trend would continue.

U.S. crude futures dipped back under $47 a barrel after rocketing 11 percent higher overnight following a not-so-dire U.S. retail sales report for February. Crude for April delivery slipped 0.5 percent to $46.77 a barrel.

Japan Nikkei 225 Inflation