By V. Phani Kumar, MarketWatch HONG KONG (MarketWatch) -- Asian markets extended gains Wednesday, with financial and resource stocks rising sharply on expectations that economic stimulus measures by governments around the world could support weakening demand. Japanese shares jumped after a shaky start, with the Nikkei 225 Average rising 3% to 8,643.27 in afternoon trading, while the broader Topix index advanced 1.9% to 833.74. Hong Kong's Hang Seng Index rose 2.8% to 15,172.78, after dropping 1.9% in the previous session, Australia's S&P/ASX 200 climbed 1.1% to 3,643.10, reversing early declines, and South Korea's Kospi added 2.6% to 1,134.42. "We are well into the period where we're expecting hedge-fund closures and daily we're hearing about funds reducing staff. But from the investor point of view, there's still a lot of optimism out there about [government] economic stimulus packages," said Benjamin Collett, head of hedge-fund sales trading at Daiwa Securities SMBC. China's Shanghai Composite dropped 1.2% after official data showed the country's producer price inflation climbed at a lower-than-expected 2% in November from the year-ago month, after rising as much as 6.6% in October. Singapore's Straits Times Index gained 0.3% to 1,759.55 and Taiwan's Taiex rose 2.8% to 4,597.63, while New Zealand's NZX 50 index slipped 0.1% to 2,722.77. Regional detail Shares of Air China soared 18.8% in Hong Kong and rose 1.5% in a downbeat Shanghai market a day after the Chinese civil aviation regulator said it was encouraging airlines to cancel or postpone plane deliveries due in 2009 because of falling demand for air travel. In Tokyo, Elpida Memory jumped 6.6%, on top of Tuesday's 17.6% surge. Reuters reported the chipmaker could be forced to redeem a recently-issued $540 million convertible bond, which may trigger a brief rebound in the shares after they suffered deep losses on concerns about equity dilution. Shares of Sony Corp. (JP:6758: news, chart, profile) (SNE: 20.50, +0.46, +2.3%) gained 0.8% in line with the broad market, reversing early declines. The stock dropped earlier in the session after the company Tuesday announced a restructuring, which includes slashing 8,000 full-time jobs worldwide, reducing investments in the electronics business by 30%, closing 10% of its 57 manufacturing sites and withdrawing from unprofitable businesses because of a global economic downturn. See full story. In Sydney, Westpac slumped 8.1% as trading resumed after its institutional share placement. Resource stocks advanced, defying an overnight drop in crude-oil prices. BHP gained 6.5% and Rio Tinto rose 9.1% in Sydney, while Inpex Holdings gained 4.2% in Tokyo, rebounding after suffering early declines. In Hong Kong, Cnooc surged 10% and Aluminum Corp. of China rose 4.5%. January crude-oil prices rose as much as $1.08 to $43.15 a barrel in electronic trading, after dropping $1.64 to $42.07 a barrel Tuesday on the New York Mercantile Exchange. In Asian currency trading, the U.S. dollar bought 92.47 yen, compared with 92.60 yen late Tuesday. On Wall Street, the Dow Jones Industrial Average lost 2.7% to 8,691.33 and the Nasdaq Composite gave up 1.6% to 1,547.34, while the S&P 500 index shed 2.3% to 888.67.

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