Nikkei gains 0.5 pct, yen weighs but outlook bright

* Nikkei up 0.5 pct in thin volume, bright outlook helps

* Stocks weighed down as yen slowly extends gains vs dollar

* Volume up slightly at 1.3 bln shares, but still low

By Chikafumi Hodo

TOKYO, Dec 29 (BestGrowthStock) – Japan’s Nikkei average advanced 0.5
percent on Wednesday as investors bought on dips amid hopes that
Tokyo stocks will stay bullish entering 2011, though a stronger
yen limited strong follow-through buying.

Stocks started lower due to the firmer yen, but they regained
strength by late morning as Chinese shares edged higher and
bargain-hunting emerged in thin trade before the year-end
holidays, analysts said.

Market participants were upbeat heading into next year, as
Japanese stocks are still cheap compared with those in other
developed markets even after having gained nearly 10 percent in
the last quarter of 2010. The index is still down 2 percent for
the year.

“There is no solid reason to sell Japanese shares actively
as the outlook for the market is still bright. Many investors are
keen to hold on to their buy positions,” said Mitsushige Akino,
chief fund manager at Ichiyoshi Investment Management.

“Investors will be entering 2011 on a bullish note, so I
think there is still a chance for the Nikkei to test 10,500 in
the near term.”

The benchmark Nikkei (.N225: ) closed the day up 51.91 points
at 10,344.54.

The broader Topix index (.TOPX: ) gained 0.6 percent or 5.18
points to 908.01.

Trading volume picked up slightly by the close after it had
fallen to the lowest since December 2008 the previous day.

A total of 1.31 billion shares changed hands on the Tokyo
Stock Exchange’s first section, up from a two-year low of 1.08
billion shares on Tuesday, but turnover was still well below last
week’s average of 1.64 billion shares.

Market participants may be still keen to push the Nikkei
above last year’s close of 10,546.44 by the final trading day on
Thursday, analysts said.

A Reuters poll showed earlier in the month that Japanese
stocks are likely to end next year roughly 17 percent above
current levels, helped by a recovery in the U.S. economy and
robust performances from emerging markets. [ID:nTOE6B5013]

Many foreign players stayed on the sidelines, but they have
been active buyers the past few months.

Finance Ministry data showed last week that foreigners’ net
purchases of Japanese stocks hit their highest since April,
rising to a net 224.4 billion yen in the week to Dec. 18.

Foreign investors were net buyers of Japanese stocks for a
seventh straight week, with total net purchases during those
seven weeks of 1.05 trillion yen.

Japanese shares are trading around 1.1 times book value, with
Greece, Italy and Ireland the only developed markets trading at
lower valuations, according to Thomson Reuters’ Starmine data.

YEN STRENGTH

The near-term trend for Japanese stocks has been hurt by the
yen’s recovery.

The dollar was down 0.2 percent at 82.24 yen (JPY=EBS: ) in
early Asian trade after falling on Tuesday as low as 81.81 yen,
its lowest since November.

Investors were also cautious about taking fresh buy positions
in Japanese shares after seeing downbeat U.S. consumer confidence
data the previous day.

U.S. consumer confidence unexpectedly deteriorated in
December, hurt by increasing worries about the labour market,
while the price of U.S. single-family homes fell almost double
the expected pace in October. [ID:nN28251373]

“The market is turning nervous as the yen is regaining
strength. Weak U.S. economic indicators released yesterday are
also making the market cautious,” said Hiroaki Kuramochi, chief
equity marketing officer at Tokai Tokyo Securities.

But the strength in oil prices, with the key U.S. crude oil
futures (CLc1: ) staying near two-year highs, pushed up shares of
resource-related firms and trading companies.

“Activity is slowing down in overseas markets as well, but
investors’ risk-taking appetite isn’t slowing as we can see
commodities prices are rising and lending support to equities,”
said Hideyuki Ishiguro, supervisor at Okasan Securities’
investment strategy section.

The 19-commodity Reuters-Jefferies CRB index (.CRB: ) settled
at its highest level since October 2008 on Tuesday after oil,
soybean and wheat prices reached peaks seen around the same
period. Raw sugar raced to a 30-year high.

Among trading houses, Itochu Corp (8001.T: ) rose 1 percent to
838 yen and Mitsui & Co Ltd (8031.T: ) gained 0.7 percent to 1,343
yen.

Hitachi (6501.T: ) rose 2.4 percent to 425 yen after the Sankei
newspaper reported the company is likely to clinch a contract for
a UK rail network project as early as the start of next year.

Agility Trains, a consortium consisting of Hitachi and
British infrastructure project manager John Laing, have been the
preferred bidders on the contract. [ID:nLDE6AO0BQ]

Separately, the Nikkei daily said that Hitachi, the country’s
biggest electronics conglomerate, would review the operations and
its capital relationships with a quarter of its roughly 40
businesses. [ID:nSGE6BR0AA]
(Additional reporting by Taiga Uranaka; Editing by Chris
Gallagher)

Nikkei gains 0.5 pct, yen weighs but outlook bright