Taiwan stocks jumped 2.23 percent to end at a 4-month high on Monday, as banks like Chang Hwa continued to benefit from a local interest rate hike and sharp gains in US stocks fuelled broad buying.
The main TAIEX closed up 132.61 points at 6,077.96, extending last week's 0.9 percent rise.
"The rally on Wall Street lent more momentum to a market that was driven by the rate hike," said Tao Chih-wei, deputy manager of institutional investor division at Fubon Securities.
Financials, which have the second heaviest weighting on the index after bellwether electronics, finished up 3.31 percent, after rising 2.2 percent on Friday.
Chang Hwa Bank rose the daily maximum 7 percent to T$20.60 and Shin Kong Financial Holding gained 5.84 percent to T$30.80.
Turnover spiked to a 5-month high of T$147.35 billion from T$102.66 billion on Friday. The index shuffled in a narrow range in September but it has risen about 16 percent since the year's trough in early August.
However, the technical charts showed Taiwan's 14-day relative strength index climbed into overbought territory at 72.882 on Monday, signalling that selling pressure could emerge any time.
Memory chipmaker Powerchip, the market's most active stock, went limit-up to T$27.90. While Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker and the market's most heavily weighted issue, rose 2.25 percent to T$45.50.
Chip shares got a boost from a 4.61 percent rally on the US Philadelphia semiconductor index on Friday after J.P. Morgan raised its investment ratings on some chip equipment makers. Solid economic data helped boost the US Dow Jones 1.11 percent higher and the tech-laced Nasdaq up 2.39 percent to its highest close in about 3 months on Friday.
The rate hike was Taiwan's first in four years and economists say the move to fight imported inflation from higher oil and raw materials prices will do little to dampen economic growth as liquidity remains loose.
The over-the-counter market's TAISDAQ index surged 2.75 percent to close at 117.21 and October TAIEX index futures rose 2.66 percent to 6,105.