Nikkei pauses, eyes fundamentals for more gains

By Chikafumi Hodo and Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average edged down on Tuesday as investors pocketed profits following a more than 6 percent jump over the previous four sessions, with eyes shifting to U.S. economic data to gauge the strength of the recovery.

The Nikkei was confined to a narrow range, with profit-taking dominant in thin trading as investors could not find strong reasons to add more positions, putting shares in Hong Kong (.HSI: ) and Shanghai (.SSEC: ) under pressure as well.

Global equities have climbed as the outlook for the U.S. economy brightened after the Federal Reserve decided to buy more debt and after encouraging U.S. jobs data. The Nikkei has risen to three-month highs while U.S. stocks (Read more about the stock market today. ) have hit two-year highs.

“It’s true that risk money has sharply increased in the wake of the second round of monetary easing in the United States,” said Junichi Misawa, senior fund manager at STB Asset Management.

“The focus now is on currency moves and the U.S. fundamentals. The Nikkei could break above its recent range of 9,000-9,700 if expectations that the U.S. economy has hit a floor can spark a rebound in the dollar, while monetary conditions are easy.”

The benchmark Nikkei (.N225: ) ended the day down 0.4 percent or 38.43 points at 9,694.49, while the broader Topix (.TOPX: ) fell 0.2 percent to 839.95.

Profit-taking intensified after U.S. shares retreated from a two-year high on Monday, weighed down by financial stocks and a stronger dollar. Stocks had been boosted by the Federal Reserve’s plan to buy $600 billion of Treasuries to lower interest rates and reinvigorate a sluggish economy.

Investors were unwilling to sell too heavily as underlying sentiment remained bullish after the Nikkei hit a three-month intraday high of 9,737.01 the previous day, traders said.

The Nikkei is likely to find support around its 26-week moving average, now at 9,500, while a series of technical selling points around 9,750-9,800 are likely to obstruct rises, traders said.

EURO/YEN DROP HITS PRECISION MACHINERY

The market encountered strong selling pressure when the Nikkei approached 9,750 the previous day, but a clear break beyond 9,800 — a peak hit in July — could trigger successive waves of stop-loss and option-related buying, paving the way for a climb toward 10,000, traders said.

Investors were also hesitant to sell Tokyo shares actively as the yen maintained a reasonable distance from its record high against the dollar.

After the market close, Toshiba Corp (6502.T: ) stuck to its full-year operating profit forecast, keeping it below market expectations despite brisk chip sales as it cited concerns about an increasingly murky economic outlook.

The stock ended the day up 1.4 percent at 428 yen.

The yen’s firmness against the euro, however, weighed on shares of precision machinery makers such as Citizen (7762.T: ) which have strong business ties to Europe. The sector’s subindex (.IPRCS.T: ) fell 1.7 percent.

The euro fell (Read more about the trembling euro. ) 0.7 percent to around 112.20 yen, hurt by rekindling concerns over the euro zone’s debt problems.

“The yen’s strength against the euro is inducing some selling pressure in precision machinery shares,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

Shares of Skymark Airlines (9204.T: ) plunged 15.9 percent to 793 yen after Japan’s third-largest carrier said it would buy up to six A380 planes worth as much as $2.1 billion in a deal making it the first Japanese carrier to purchase the superjumbo jets from Airbus (EAD.PA: ).

Airbus is tackling engine troubles that led Australia’s Quantas Airways to ground its A380 fleet to investigate the cause of an explosion that last week damaged a superjumbo engine.

Dentsu (4324.T: ), Japan’s largest advertising firm, rose 2.1 percent to 2,099 yen after raising its operating profit forecast to 47.5 billion yen from 42.2 billion yen for the year to March.

Dentsu attributed the outlook hike to cost-cutting and better-than-expected sales of TV advertising.

Aiful Corp (8515.T: ) surged 32 percent to 66 yen after the consumer lender said it now expects a first-half profit due to higher-than-expected interest income and loan recoveries, lower-than-anticipated bad loan provisions and cost cuts.

Trade was light on the Tokyo exchange’s first section, with 1.74 billion shares changing hands, compared with a one-week high on Friday above 2 billion shares.

Declining stocks outnumbered advancers, 784 to 697.

(Editing by Edmund Klamann)

Nikkei pauses, eyes fundamentals for more gains