Nippon Steel, the world's second-biggest steel maker, and two domestic partners have agreed to expand capital ties to counter the rapid growth of ArcelorMittal, industry sources said on Wednesday.
Nippon Steel, Sumitomo Metal Industries and Kobe Steel are expected to announce details later in the day.
The news, which first appeared in the Nikkei business daily, boosted shares in steel companies across the board, a sector among the hardest hit by worries over the effects of the subprime loan problems and the prospect of surges in iron ore and coking coal prices from next April.
The iron and steel sector jumped 2.85 percent by mid-session, becoming the biggest percentage gainer on the main board and sharply outperforming a 0.36 percent gain in the TOPIX index of all first-section shares.
Nippon Steel ended morning trade up 2.9 percent at 634 yen, while JFE Holdings, the world's third-biggest steel maker, climbed 3.9 percent to 5,380 yen.
The three companies declined to comment.
The three firms have gradually increased business ties and cross-shareholdings since 2002, forming a broad alliance as a way to fend off a potential bid from industry giant ArcelorMittal.
In late October they said they would further strengthen cooperation and might raise their shareholdings in each other.
Industry sources said the stakes they take in each other will be bigger than reported in the Nikkei.
The Nikkei said Nippon Steel and Sumitomo Metal will each spend 40 billion yen ($353 million) to raise their stakes in each other, with Nippon Steel's holding in Sumitomo Metal climbing to around 7 percent from 5 percent.
Sumitomo Metal's interest in Nippon Steel would rise to nearly 3 percent from 1.8 percent, it said. Nippon Steel would spend 10 billion yen to raise its holding in Kobe Steel to around 3 percent from 2 percent, it said.