Japan's Nikkei rose 0.5 percent on Monday as investors bought Fanuc Ltd and other large-cap shares after the Bank of Japan's tankan survey showed manufacturers remained optimistic despite turmoil in global credit markets.

The tankan's headline diffusion index for big manufacturers' sentiment was plus 23, slightly above the market's median forecast of plus 22 and matching the previous survey's reading in June.

Stocks dipped briefly at the open and then recovered, helped by rises in large-cap shares.

The market is carrying over last week's upward momentum, said Zenshiro Mizuno, senior managing director at Marusan Securities. There were some buying on dips after tankan, which showed the subprime problems did not have much negative impact.

As of 0105 GMT, the benchmark Nikkei was up 87.91 points at 16,873.60, extending a 3 percent gain last week. The broader TOPIX index was up 0.3 percent to 1,620.97.

Among gainers, industrial robot maker Fanuc rose 1.7 percent to 11,910 yen, casual clothing retailer Fast Retailing rose 2.7 percent to 6,810 yen and Sony Corp increased 1.6 percent to 5,660 yen.

Shares of Mitsubishi Motors Corp jumped 6.9 percent to 187 yen after the automaker tripled its group operating profit forecast for the first half on Friday.

Shares of IHI were untraded due to a glut of sell orders after the heavy machinery maker slashed its annual earnings outlook on Friday to forecast an operating loss on problems in its energy plant division and said it may revise that even lower.

Ohter plant-related shares were also sold.

Chiyoda Corp, a plant engineering company, fell 3.1 percent to 2,005 yen. JGC Corp shed 2.7 percent to 2,155 yen. Heavy machinery and engineering firm Hitachi Zosen Corp fell 3.5 percent to 167 yen.

Japan