Tepco's application on Friday to restart an undamaged nuclear plant helped convince some wavering smaller banks to join a group of 28 financial institutions in rolling over 77 billion yen ($784 million) in loans coming due at the end of October, the source at one of the creditor institutions told Reuters.

"As long as the company doesn't go bankrupt, passive traders buy Tepco, and some active traders are even buying its stock because of its decision to restart operation of its plant," said a fund manager at a Japanese asset management firm.

Tepco gained as much as 2.5 percent to 612 yen and was the most traded stock by turnover in mid-morning trade after sagging as low as 2.7 percent to 581 yen earlier.

Tepco on Friday applied to restart its Kashiwazaki Kariwa facility, the world's largest nuclear plant, an initial step on its planned recovery from the Fukushima disaster, although approval is uncertain and any restart is many months away.

Tepco shares have soared 195 percent so far this year even though the company still has trouble getting Fukushima under control. Tepco has posted more than $27 billion in net losses since the Fukushima disaster, and it has had to acknowledge that radioactive water has been leaking into the nearby Pacific Ocean since the disaster.

According to data provider Markit, 4.17 percent of Tepco's outstanding shares were on loan as of September 26, in line with 4.10 percent at the end of August.

(Reporting by Ayai Tomisawa; Editing by Supriya Kurane)