A man looks at his watch as he passes an electronic board displaying a graph of currency rates outside a brokerage in Tokyo.

Tokyo - Tokyo stocks closed 0.90 percent higher Monday, lifted by a weaker yen and bargain-hunting, despite a surprise decline in Japan's factory output.

The benchmark Nikkei 225 index added 131.80 points to close at 14,827.83, while the Topix index of all first-section shares rose 1.38 percent, or 16.37 points, to 1,202.89.

The upbeat start to the week came after a better-than-expected rise in US consumer incomes and spending, which led New York's three main indices higher.

The Dow rose 0.36 percent, the S&P 500 added 0.46 percent and the Nasdaq gained 0.11 percent.

Shortly before the opening bell, government data showed Japan's industrial output in February fell 2.3 percent month-on-month, after a 3.8 percent expansion in January.

Economists had widely predicted a 0.3 percent rise, and the February contraction was the first output decrease in three months.

The news raised the possibility of further monetary easing measures by the Bank of Japan (BoJ), putting downward pressure on the yen.

In late afternoon trade the dollar bought 102.87 yen against 102.80 yen in New York Friday.

“Buyback momentum, helped by the weaker yen - while not based on large volume - is trumping the data,” said Tachibana Securities market analyst Kenichi Hirano.

Traders are awaiting the release Tuesday of the BoJ's Tankan survey of Japanese business sentiment while the US Labor Department will on Friday unveil closely watched non-farm payrolls data for March.

Japan is on Tuesday set to usher in its first sales tax rise since 1997 - from 5.0 percent to 8.0 percent.

The increase is seen as critical to taming the nation's huge national debt but there are fears it could dent consumer spending and derail a recovery in the world's third-largest economy.

“The tax hike has been cited as a central factor behind much of the capital flight from Japan stocks over the last few weeks, but is now almost totally factored into the market,” SMBC Nikko Securities general manager of equities Hiroichi Nishi said.

Exporters and inflation-sensitive shares led the market, with Honda climbing 2.25 percent to 3,634 yen and Kyocera gaining 0.75

percent to 4,653 yen.

(Dow Jones Newswires contributed to this story) - Sapa-AFP