Tokyo stock prices rallied Monday amid news of the Hokkaido Takushoku Bank failure, as investors shopped for bargains, aided by growing expectations that public funds will be used to help dispose of a huge amount of bad loans.

The Nikkei average shot up 1,200.80 points to close at 16,283.32, and the Topix index, which shows the moves of all first section stocks, closed at 1,257.85, up 80.33 points. The dollar was quoted at 125.17-yen 125.20 yen in Tokyo at 5 p.m. against Friday's 125.74-yen 125.76 yen, after wildly fluctuating between 124 yen and 126 yen.

In block trading at the TSE, the price of the benchmark No. 182 10-year government bond, carrying a 3.0 percent coupon, fell 0.39 point from Friday's close to 109.09, with the yield surging 0.050 percentage point to 1.685 percent, as many investors moved to shift their funds to the stock market.

The expectations that public funds will be used to help dispose of bad loans were spurred by news reports that the Bank of Japan plans to extend special unsecured loans to Hokkaido Takushoku Bank, which went effectively insolvent earlier in the day.

Such moves revived hope in the stock market that the government will use public money to ease the loan woes that have weighed heavily on the stock market and banking and construction industries, financial analysts said. The bank collapsed despite government pledges not to allow any of the nation's top 20 commercial banks to fail. The government may have no alternative but to use public funds to prevent the economic situation from worsening, the analysts said.