Share prices closed sharply higher in a broad rally, with the benchmark index regaining the 7,000-points level, as worries eased over the financial sector and oil prices fell sharply last week.

The financial sector index surged more than 6 pct after US banking giant Citigroup announced better-than-expected second-quarter results.

Other sectors were also lifted by bargain-hunting after the market's big drop on Friday.

The weighted index closed up 270.35 points or 3.97 pct at 7,085.67, after moving between 6,991.71 and 7,097.65.

Turnover was 97.52 bln twd.

"Oil prices dropped, reviving interest in the local bourse... as worries over inflation pressures eased," said Michael On, president of Beyond Asset Management Co Ltd.

The market's previous slumps also set the stage for a broad technical recovery, he said.

Stocks had been oversold earlier and investors are now covering short positions, the analyst said.

"Local financial stocks had been battered by worries over US financial sector troubles.. gains in their US peers Friday convinced investors to buy them here today," On said.

Citigroup announced on Friday a smaller-than-expected loss of 2.5 bln usd for the second-quarter, offering some relief to investors after Merrill Lynch gave a disappointing report a day earlier.

Some traders are also building positions on hopes that the market may have hit a bottom, On said.

Looking ahead, global oil price movements and local corporate earnings results will determine the local bourse's prospects, he said.

Risers led decliners 1,683 to 505, with 328 stocks unchanged.

A total of 82 stocks closed limit-up, while 40 were limit-down.

The financial sector was up 6.09 pct, textile sector soared 5.33 pct, transport jumped 4.19 pct, electronics advanced 4.06 pct and cement rose 3.66 pct.

The Taiwan dollar ended the morning session at 30.355 to the US dollar, compared with the previous close of 30.360.

Cathay Financial Holdings rallied 4.20 twd at 64.20, Fubon Financial surged 1.85 to 28.55, Chinatrust Financial gained 1.50 to 23.55 and First Financial Holding advanced 1.80 to 27.60. All were limit-up 7 pct.

Hon Hai Precision Industry jumped 7.50 twd or 5.23 pct to 151.00 on a report that the Hon Hai group plans to invest in southern Taiwan's Kaohsiung port.

China Airlines advanced 0.65 twd to 10.50 and EVA Airways gained 0.67 to 10.65. Both rose the maximum daily allowable 7 pct following the oil price pullback.

Taiwan Semiconductor Manufacturing Co (TSMC) gained 1.80 twd to 59.80 and United Microelectronics (UMC) rose 0.55 twd to 15.85 on interest in large-cap stocks.

Among other stocks in focus, MediaTek surged 19.50 twd or 6.41 pct to 323.50, HTC Corp rose 15.00 twd to 499.00, Far Eastern Textile was limit-up 2.50 twd or 7 pct at 38.70, Asia Cement rallied 2.30 twd or 5.68 pct to 42.80 and Nan Ya Plastics gained 2.10 twd to 51.60.