TOKYO, Nov 25 (Reuters) - Japanese stocks rose by the most in two weeks on Monday as investors turned more confident the United States and China could reach an agreement to de-escalate their trade war.
The Nikkei index ended Monday up 0.78% at 23,292.81 points, the biggest increase since Nov. 12, as exporters in the IT sector and the industrial equipment sector led the advance, because they benefit from an increase in overseas demand.
The latest wave of optimism came after U.S. President Donald Trump said on Friday a trade deal with China is "potentially very close." Chinese President Xi Jinping also reiterated his desire on Friday for a preliminary trade deal.
That confidence was reinforced on Monday when China's Global Times said both countries were "very close" to a phase one trade deal and that China was willing to negotiate for a phase two or even a phase three trade deal.
However, traders remain skeptical amid conflicting signals from both sides, which have caused markets to swing between gains and losses.
"There have been some comments suggesting progress in resolving the U.S.-China dispute, but there are still a lot of risks posed by things like the situation in Hong Kong," said Shusuke Yamada, head of FX and Japan equity strategy at Merrill Lynch Japan Securities in Tokyo.
"Hope hasn't completely collapsed, but we need to closely watch how this plays out."
There were 191 advancers on the Nikkei index against 29 decliners on Monday.
The largest percentage gainers in the index were steel maker JFE Holdings Inc, which rose 4.19%, followed by Hitachi Construction Machinery Co Ltd and Pacific Metals Co Ltd , which climbed 4.18% and 4.16%, respectively.
The biggest index losers were electronics maker Panasonic Corp, which fell 2.29%, followed by telecoms facilities builder Comsys Holdings Corp and Hino Motors Ltd , which fell 2.14% and 1.94%, respectively.
Washington and Beijing have imposed tariffs on each other's goods in a 16-month long dispute over Chinese trade practices that the U.S. government says are unfair.
The tariffs have slowed trade flows and economic growth, making them the biggest risks to the global economy.
If the two sides can agree to roll back even some of these tariffs, that could spark a global rally in equities and other risk assets.
The Topix index rose 0.69% on Monday to 1,702.96.
The volume of shares traded on the Tokyo Stock Exchange's main board was 0.89 billion, compared to the average of 1.27 billion yen in the past 30 days. (Editing by Sam Holmes)