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Nikkei Ratchets Up to Nine-Month High

01/07/2003 12:57
Japan's Nikkei average closed at a nine-month high on Tuesday as core blue chips such as NEC Corp extended recent gains after upbeat results in a key corporate survey underlined optimism over the nation's economy.

The Nikkei ended up 2.15 percent at 9,278.49 and the broader TOPIX index gained 1.42 percent to 916.26. Both were their highest closes since September 30.

That means the indices have returned to levels where they were before reformist Heizo Takenaka became top financial regulator. The Nikkei had fallen almost 20 percent to a two-decade low in late April before regaining ground, helped by the government bailout of fifth-ranked bank Resona Holdings

Before the market opened on Tuesday, the Bank of Japan said its quarterly "tankan" survey showed that sentiment at large manufacturers, measured as a diffusion index, improved to minus five in June from minus 10 in March.

It was the strongest reading in more than two years and much better than the median forecast of minus 10 in a Reuters poll of 23 analysts.

"Although there has been a feeling that the economy was losing momentum, the tankan gives us the impression that it may actually be improving," said Soichi Okuda, a senior economist at Aozora Bank.

There are also signs that, lured by the Tokyo market's stellar performance in the April-June quarter, investors both at home and from abroad are in a hurry to reduce cash positions and boost investment in Japanese shares, analysts said.

Reflecting their appetite, the trading volume on the main board exceeded one billion shares again on Tuesday, marking the 24th straight day of such active trading.

Masanori Hoshina, head of global portfolio trading and marketing at BNP Paribas, said the market's momentum looks robust since there are several potential investor favorites which could lead the market higher.

"NEC may sooner or later come to a halt (after its steep gains), but there are several other issues which are ready to take over the 'hero' status. Such stocks vary from its peers in the tech sector such as Fujitsu and Hitachi to banks or steel firms," Hoshina said.

NEC, Japan's biggest maker of telecoms equipment and personal computers, was up 10.17 percent at 661 yen. The stock earlier rose as high as 668 yen, a 10-month high and up 50 percent this year. NEC was the most active issue by volume.

Rivals Hitachi Ltd rose 6.29 percent to 541 yen and Fujitsu Ltd climbed 7.72 percent to 530 yen.

Analysts said sentiment toward these firms was helped by the yen's stabilization around 119 per dollar, while the shares looked cheap historically and hopes are rising for a pickup in the U.S. market for telecom equipment and semiconductors.


The Bank of Japan's survey also showed capital spending plans by large manufacturers were surprisingly robust. They planned to raise spending for the year to next March by 11.5 percent, the best outlook since June 1990.

The encouraging economic news helped prop up major banks, with UFJ Holdings, the smallest of Japan's four megabanks, soaring 11.36 percent to 196,000.

Real estate firms were the best-performing sector, being snapped up partly because they had lagged recent market rises. Japan's largest real estate developer, Mitsui Fudosan Co Ltd T> , climbed 7.82 percent to 827 yen.

Among other notable stocks, Internet investor Softbank Corp rose 3.74 percent to 2,360 yen, with individual investors in particular lured by the news that the value of its stock portfolio swelled above 1.0 trillion yen ($8.35 billion) this week, a level last seen in January 2002.

Recent rises in stock markets in Japan and the United States have boosted the once high-flying firm's investments, most of which dwindled when the Internet bubble burst.

But despite all the good news, domestic institutional investors were seen mostly reluctant to join in the rally as they still held a hefty amount of Japanese shares.

"The tankan is certainly positive. But we want to know if there's a substantial change in slack consumer spending at home and in the United States (Japan's main export market)," said Hiroaki Muto, general manager at Nissay Asset Management.

A total of 1.78 billion shares changed hands, up from 1.50 billion on Monday. Advancers outnumbered decliners 927 to 491.