Tokyo stocks closed higher on the first trading day of 2012, with the benchmark Nikkei index gaining 1.24 percent to a three-week closing high, following a slew of positive macroeconomic data suggesting the global recovery is back on track.

Local brokers said that the latest data from the U.S. Institute for Supply Management showing that manufacturing in the world's largest economy grew at its fastest pace in six months in December bolstered confidence following eurozone-driven pessimism dominating play at the end of 2011.

The Institute for Supply Management's index came in well above consensus forecasts at 53.9, leading economists to believe that the U.S. economy may have expanded in the fourth quarter at a preliminary rate of 3.5 percent, according to some estimations.

"The U.S. has been surprising people with some pretty good numbers and that's helped to lift the mood, which had gotten too pessimistic. Today is just one day, but it's a little New Year's gift," said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd.

But despite investor sentiment turning positive on the first trading day of the year, further buoyed by data showing that Australian manufacturing expanded for the first time since June, unemployment rates improved in Germany and China's manufacturing index rose, some strategists warned that ongoing instability in foreign exchange markets will ensure that Japanese exporters are pressured by the strength of the currency, compounded by the eurozone sovereign debt crisis.

"Even though stocks advanced today, the lack of concrete progress in the eurozone debt crisis and the persistent strength of the yen, especially against the euro, will remain as weights on the market," said Yumi Nishimura, a senior market analyst at Daiwa Securities Co.

The 225-issue Nikkei Stock Average added 104.76 points from Friday to 8,560.11, marking its highest closing level since Dec. 12, while the broader Topix index of all First Section issues on the Tokyo Stock Exchange gained 14.38 points, or 1.97 percent, to close the day at 742.99.

Japanese financial issues rose after Citibank Inc. said the sector was undervalued and top-lender and Japan's biggest bank by assets Mitsubishi UFJ Financial Group Inc. climbed 3.4 percent to 338 yen, while Sumitomo Mitsui Financial Group Inc. gained 3.7 percent to 2,224 yen.

Nomura Holdings also closed in positive territory, leaping 6.9 percent to 249 yen, while Daiwa Securities Group rose 4.6 percent to end the day at 251 yen.

Resource-related issues gained on rising commodity prices, with Japan's oil-related firms getting a boost from crude climbing 4.2 percent to 102.96 U.S. dollars a barrel in New York on Tuesday.

Subsequently, Inpex Corp. advanced 2.7 percent to 498,000 yen, while Japan Petroleum Exploration Co. lost 2.8 percent to finish at 3,095 yen.

Mitsui Mining & Smelting rose 3.0 percent to 205 yen and Itochu, a trading house, added 2.2 percent to 799 yen.

Other issues rose on individual news, with Elpida Memory Inc. jumping 5.6 percent to 378 yen, following reports the government is keen for the chipmaker and Toshiba Corp. to amalgamate some of their businesses.

Electronic component maker Omron Corp. was also among the day's notable gainers, rising 4.3 percent to 1,614 yen, following a report in the Nikkei newspaper saying the firm has pioneered new software that by utilizing smartphone cameras can translate foreign-language texts.

Among Japan's automakers, Suzuki Motor Corp., known for its subcompact Swift car, rose 2.2 percent to 1,627 yen, after the firm announced it will pump a substantial amount of money to boost its operations in Indonesia.

Meanwhile scandal-plagued Olympus Corp. relinquished 2.4 percent to 998 yen as the firm continues to struggle to repair its tainted image, following a widely-publicized attempt to hide massive investment losses.

Trading volume on Wednesday rose to 1.44 billion shares on the Tokyo Exchange's First Section, up from Friday's volume of 838.67 million, as the market's foreign investors, who comprise 65 percent of its participants, returned from New Year holidays.

During trading hours on the First Section Wednesday, advancing issues trumped declining ones by 1,457 to 141.