Japanese shares surged to their highest in more than four years and South Korean stocks hit a new peak on Tuesday as a strong U.S. dollar and strength in U.S. manufacturing boosted Asian exporters and tech stocks. The dollar hit a 3-month high against the euro and held near Monday's 16-month high against the yen after the U.S. Institute of Supply Management's (ISM) manufacturing index reinforced market expectations of more interest rate rises. "The foreign exchange rate is powering the market ... investors are picking up stocks that benefit from the weaker yen," said Katsuhiko Kodama, Toyo Securities' head of equities. "Up to now, shares in firms that rely on domestic demand have helped lead the market, but investors have lost their appetite for those ... with the exchange rate and better sales for semiconductor companies it's kind of hard to take your eyes off chip-related and other high-tech stocks," he said. Chip stocks rallied after the World Semiconductor Trade Statistics group said on Monday that global sales of semiconductors rose in August after stalling in July, keeping the chip industry on track for 6 percent growth in 2005. The dollar gained after the ISM's index of U.S. factory activity jumped in September as post-hurricane reconstruction spurred big demand for goods. A spike in the "prices paid" component in the data fanned concern about inflation. Atlanta Federal Reserve President Jack Guynn told Reuters in an interview that the Fed's credit tightening campaign still had some way to go before completion. The euro fell as low as $1.1900 in early Asian trading, a 3-month low. The dollar traded up towards 114.30 yen , just shy of Monday's 16-month high near 114.40, although the dollar eased from its highs in afternoon trade.