Shares of Japan’s smallest listed companies, Asia’s worst performers last year, are staging a comeback as tougher accounting standards revive confidence in earnings reports and consumer spending rebounds.

The Russell/Nomura Small Cap Index, whose 1,332 members have an average market value of $630 million, has outperformed the Nikkei 225 stock average in six of the last seven weeks. The measure trailed the Nikkei in all but two of the previous 17 months after executives of Internet provider Livedoor Co. were arrested in January 2006 for fabricating profits, sparking investor concern about the finances of second-tier companies.

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