Share prices closed 0.91 percent higher yesterday as Wall Street's sharp overnight gains supported a technical rebound after recent sustained weakness, dealers said.
The weighted index closed up 52.62 points at 5,835.37 on turnover of NT$45.17 billion (US$1.42 billion).
The spotlight was on the electronics companies, which picked up sharply after strong gains at their US counterparts.
Risers led decliners 485 to 231, while 246 stocks were unchanged.
The electronics sector was up 1.76 percent and financial up 0.19 percent, while petrochemicals fell 0.51 percent.
"Wall Street's gains sparked a technical rebound in the local bourse after recent weakness," said Tom Tang, president at Kai Yuan Securities Investment Consultant Co.
Several stocks previously hit by concerns over the negative impact of new accounting rules recovered strongly to take the index higher.
"There were expectations of support from major shareholders for those firms after the previous slump," Tang said.
Taiwan Semiconductor Manufacturing Co (台積電) closed up NT$1.60 at NT$49.20 and United Microelectronics Corp (聯電) was up NT$0.20 at NT$19.20.
Powerchip Semiconductor Corp (力晶半導體) fell NT$0.30 to NT$23.80 after last year's results and guidance that there will be a 40 percent to 45 percent increase in demand this year against a 35 percent to 40 percent expansion in supply.
Amid the dull sentiment prolonged from last year, Deutsche Bank painted a rosy outlook for the investors by predicting a 12-month target of 6,617 points in a report released yesterday.
"Taiwan offers one of the best returns in Asia," the bank said.
The financial institution suggested a bottom-up valuation approach as the most effective investment strategy for this year, owing to a lack of demonstrable earnings catalysts and macro trends.
The bank's five top buys include Taiwan Semiconductor Manufacturing Corp, Eva Airways Corp (長榮航空), Asustek Computer Inc (華碩), Formosa International Hotels Corp (晶華酒店), which runs Grand Formosa Regent Taipei, and Johnson Health Tech Co (喬山健康科技), a top-five player in the US$5 billion fitness-equipment market worldwide.