The weighted index rose 45.59 points to 7,463.05 on turnover of NT$92.35 billion (US$2.84 billion).

Gainers led losers by 1,286 to 1,134 with 323 stocks unchanged.

The market opened 1.39 percent higher as investors were encouraged by a breach of the 10,000 point mark on Wall Street, and the momentum vaulted the weighted index past 7,520 points before profit taking set in, dealers said.

However, citing the day's "thin turnover," Concord Securities analyst Allen Lin said that "Wall Street's strong showing failed to call too many investors back to the trading floor.

"Sentiment remained cautious as investors fear a major correction will come soon after recent significant gains," he said.

China chips which have close business ties with the mainland got boosted by rotational buying amid optimism that they would benefit from strong demand on the mainland, dealers said.

Food maker Uni-President rose 1.96 percent to NT$38.95 and rival Great Wall gained 1.27 percent to NT$35.75.

Nan Ya Plastics added 2.26 percent to NT$54.40 and retailer Far Eastern Department Store rose 6.96 percent to NT$36.90.

"The market faced heavy resistance after it breached 7,500 points. Unless daily turnover expands to NT$130 billion or more, it is not easy for the bourse to beat the downward pressure anytime soon," Lin said.

Lin said due to thin turnover, large cap stocks failed to generate a breakthrough to propel the broader market.

Microchip designer MediaTek closed down 0.52 percent at NT$477.50 and flat panel maker AU Optronics fell 0.50 percent to NT$29.65.

Taiwan Semiconductor Manufacturing Co closed up 0.50 percent at NT$60.00 and United Microelectronics Corp rose 2.26 percent to NT$15.85.