TOKYO, Jan 7 (Reuters) - Japanese shares rose to multi-year highs on Thursday, powered by financials as U.S. bond yields climbed on hopes of larger debt-financed stimulus following a Democrat sweep in two Senate runoffs in Georgia.

The Nikkei average rose 1.91% to 27,571.87 by late morning, briefly hitting its highest level since August 1990.

The broader Topix added 2.24% to 1,836.37, climbing above a peak hit late last year to reach its highest level since October 2018.

Investor appetite was not dented by the chaos in Washington D.C. after supporters of President Donald Trump stormed Capitol Hill, forcing Congress to suspend a session to certify President-elect Joe Biden's victory.

"That seemed like the ultimate epitome of four years of Trump's presidency. But no one thinks the election results will be overthrown by this," said Takashi Hiroki, chief strategist at Monex.

Sharp rises in U.S. bond yields boosted shares of Japanese banks and insurers, big investors in U.S. debt.

Dai-ichi Life Holdings rose 8.5% and T&D Holdings gained 8.6%.

Among banks, SMFG gained 5.0%, while Mizuho added 4.8% and Mitsubishi UFJ rose 3.7%.

Other cyclical, value shares also gained on hopes of a stimulus package from the incoming Biden U.S. administration.

Topix Value Index gained 2.6%, outperforming 2.0% rise in Topix Growth.

Steelmakers gained 5.3%, with Nippon Steel rising 7.5%. Ship builder Hitachi Zosen surged 13.5%.

Domestic leisure-related shares, such as railway companies , bounced back even as the Japanese government looked set to declare a state of emergency for the greater Tokyo area on rising COVID-19 infections.

"The economic impact would be much smaller than previous declarations as it is confined to Tokyo and restrictions will be limited," said Hiroyuki Ueno, chief strategist at Sumitomo Mitsui Trust Asset Management.

SoftBank Group dropped 1.6% after the news that the Trump administration is considering adding Alibaba Group Holding Ltd to its trade blacklist of Chinese companies.

Softbank Group is the largest shareholder of the Chinese e-commerce giant. (Reporting by Hideyuki Sano; Editing by Ramakrishnan M.)