The Nikkei share average jumped 3.12% to 28,884.13, with all 225 shares advancing, and marked its biggest percentage gain since June last year. The index tumbled 3.3% in the previous session.

Shippers led gains, with the top three firms logging rise of more than 10%, after Mitsui OSK Lines raised its forecast for six-month net income to 170 billion yen ($1.54 billion) from 50 billion yen.

Mitsui OSK was among the top performing stocks on the Topix, jumping 10.2% and touching a decade high. Rival Kawasaki Kisen rallied 10.2% and also reached a decade high, while Nippon Yusen gained 10.3%.

The broad Topix rose 3.16%, reversing Monday's 2.4% slide, with every sector advancing.

Value stocks outperformed, with the Topix Value index rallying 3.4%, compared with the Topix Growth index's 3% climb.

The global equity sell-off last week, which spilled into Asian stocks on Monday, came after the Fed unexpectedly signalled earlier rate hikes and St. Louis Fed President James Bullard said the shift toward faster policy tightening was a "natural" response to economic growth.

However, U.S. stocks posted sharp gains on Monday, with the S&P 500 advancing 1.4%. [.N]

"After the rebound on Wall Street, investors have confidence to start buying back Japanese shares," said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

"The market has priced in one Fed rate hike for next year, but that seems to be it for now. I don't think it's the case that three or four hikes are going to priced in."

Automakers were among other stand-out stocks, with Suzuki Motor rallying 7.4% and Toyota Motor adding 3.3% amid a weakening yen, which boosts exporters' profits.

Home builders also gained, with Daiwa House and Sekisui House rising 6.2% and 6.1%, respectively.

"The vaccine rollout is progressing in Japan, so little by little economic activity will be getting back to normal," Ichikawa said, which is lifting stocks such as home builders.

($1 = 110.2700 yen)

(Additional reporting by Hideyuki Sano, Editing by Amy Caren Daniel)

By Kevin Buckland