Nikkei up 1.5 percent, climbs further above 16-month low

By Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average rose 1.5 percent on Thursday, moving further away from a 16-month low touched the previous day, after U.S. and Chinese manufacturing data eased investor worries about the global economy.

Market players said the Nikkei is steadying somewhat following a 7.5 percent slide in August, likely helped by buying from domestic institutional investors at lows and by buying of futures from foreigners.

A manufacturing rebound in China and stronger-than-expected growth in Australia helped halt the yen’s advance and lifted the Tokyo market on Wednesday.

Global stocks later also drew support after the Institute for Supply Management said its index of U.S. factory activity rose to 56.3 in August from 55.5 in July, much higher than forecast by economists.

“It’s too early to say worries about a double-dip recession in the economy have been wiped away just because China’s PMI, Australia’s GDP and U.S. data weren’t bad,” said Masahiko Sato, an executive director at Nomura Securities’ equity marketing department.

“But stocks may become more resilient to poor economic indicators going forward and gain further if money that had shifted to bonds on extreme concern over the economy comes back to equities, early signs of which have likely appeared in U.S., Germany and U.K. bonds after yesterday’s data.”

The benchmark Nikkei (.N225: ) gained 135.82 points to 9,062.84. It rose 1.2 percent on Wednesday, after falling as low as 8,796.45, its lowest since April 2009.

Short-covering by investors like hedge funds lifted the market on Thursday but it later lost some ground after a slip in dollar/yen prompted selling by Japanese investors, said Mitsuo Shimizu, a deputy general manager at Cosmo Securities.

The broader Topix (.TOPX: ) climbed 1 percent to 819.42.

Caution ahead of the U.S. jobs data also kept investors from buying aggressively. An ADP Employer Services report showed private U.S. companies unexpectedly cut 10,000 jobs in August.

Government data also indicated U.S. construction spending fell to its lowest rate in 10 years.

The next targets for the Nikkei will likely be around 9,280 and then 9,360, highs hit in late August, a market analyst said.

If it resumes falling, the next technical level is 8,697, a 61.8 percent retracement of the rally from its March 2009 low to its April 2010 high.

YEN IMPACT ON EARNINGS

Honda Motor Co (7267.T: ) and other exporters that are sensitive to the health of the world economy led gains in the overall market. Honda rose 1.9 percent to 2,859 yen and Kyocera Corp (6971.T: ) gained 3.3 percent to 7,510 yen.

But persistent worries about the strong yen weighed on some exporters. Toyota Motor Corp (7203.T: ) inched down 0.3 percent to 2,850 yen, after recent slides took it to a 17-month low on Wednesday.

Many Japanese companies have set their assumption rates for dollar/yen at 90 yen and at 110-115 yen for euro/yen in the year to March 2011.

On Wednesday, the dollar was trading at 84.19 yen, within sight of a 15-year low of 83.58 yen hit last week, while the euro was down 0.5 percent at 107.59 yen.

“According to our regression analysis, if dollar/yen goes down to 85 yen from 90, for example, that will likely push down Japanese companies’ sales by 1 percent and profits by 3 percent,” said Mitsutaka Yamamoto, a quants analyst at Mizuho Securities Research & Consulting Co.

“The impact seems relatively small when you’re only looking at the currency impact (from the repatriation of overseas earnings) at this point. The situation could change, however, for instance, if production levels fall due to a strong yen.”

Other market players say they are waiting to see the yen’s impact on earnings, adding that conservative guidance by many Japanese companies may mean they are less likely to disappoint.

Some 1.58 billion shares changed hands on the Tokyo exchange’s first section. Advancing stocks outnumbered declining ones by more than 3 to 1.

(Editing by Edwina Gibbs)

Nikkei up 1.5 percent, climbs further above 16-month low