Tokyo - Tokyo stocks gained ground early Wednesday on the US Federal Reserve's announcement to help struggling AIG insurance company.

The benchmark Nikkei 225 Stock Average surged 241.06 points, or 2.08 per cent, to 11,850.78.

The broader Topix index was also up 14.4 points, or 1.29 per cent, to 1,131.97.

The market sentiment improved after the US Federal Reserve announced that it will lend up to 85 billion dollars to AIG to prevent it from falling into bankruptcy.

The Tokyo market plummeted 5 per cent the previous day in reaction to the latest Wall Street banking crisis, including the collapse of investment bank Lehman Brothers and the struggles of insurance giant AIG.

Meanwhile, the Bank of Japan injected 2 trillion yen (19.15 billion dollars) into the market Wednesday in addition to the previous day's 2.5 trillion yen as an effort to stabilize the markets.

Japan's central bank was expected to maintain its key short-term interest rate at the end of a two-day meeting later in the day.

On currency markets at 9 am (0000 GMT), the dollar traded at 106.10-13 yen, up from Tuesday's 5 pm quote of 103.71-74 yen.

The euro traded at 1.4165-70 dollars, down from late Tuesday's quote of 1.4239-42 dollars, and at 150.37-42 yen, up from 147.70-74 yen. (dpa)