ASIAN STOCK MARKETS UP

HONG KONG (Reuters) - Asian stock markets rose on Monday as investors' confidence in the battered financial sector seeped back and the dollar held on to recent gains, despite the oil price hitting a fresh all-time high close to $120 a barrel.

Japan's Nikkei average .N225 broke through the 14,000 mark for the first time in two months as financials such as Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research), which soared 9 percent, surged on a growing sense that the worst may be over.

"There's no doubt now that confidence is growing that the worst of the credit crunch may be behind us, with a lot of the worries about risk and the financial system clearing up," said Noritsugu Hirawaka, a strategist at Okasan Securities.

"As a result, money that went into Japanese government bonds is now returning to stocks, especially financials."

The Nikkei was up 0.8 percent by 0142 GMT, while MSCI's index of stocks across the rest of Asia .MIAPJ0000PUS was 0.4 percent higher.

Friday's rout of Japanese Government Bonds continued as investors quit bonds to snap up stocks, driving the benchmark 10-year yield to a fresh six-month high of 1.675 percent. On Friday June 10-year futures 2JGBv1 suffered their biggest one-day fall since 2003 as investors abruptly changed their view of the outlook for Japanese and U.S. interest rates.

Bank stocks also helped Australia's benchmark S&P/ASX 200 index gain 0.6 percent, but some market watchers warned against throwing caution to the wind.

"The market seems to be saying that the worst is over and it is safe to get back into the water," said Hans Kunnen, head of investment markets research at Colonial First State.