Nikkei extends rally to new 5-month closing high
TOKYO (Reuters) - The Nikkei average rose almost 1 percent to a fresh five-month closing high on Monday, as receding worries about the yen's strength encouraged a shift back to Japanese shares led by foreign investors.
Active short-covering of banks and other financials by overseas fund operators helped lift Tokyo shares last week, and there was more talk of overseas buying of Japanese blue-chip equities on Monday, traders said.
"The market has started to recognize just how resilient (Japanese) exporters have become toward yen strength. Their profitability has been improving more than the market had expected," said Fumiyuki Takahashi, equity strategist for Barclays Capital Japan.
"Money has been flowing in, especially from overseas," Takahashi said, adding that the Nikkei may rise to 10,500 by year-end and rise further by the end of next March.
The Nikkei gained 3 percent last week and has climbed more than 10 percent so far in November, helped in part by the yen's slip from a 15-year high against the dollar struck earlier in November.
The Nikkei's rally this month has outpaced a 1.4 percent rise in the U.S. S&P 500 and a 0.9 percent rise in MSCI's index of Asia-Pacific shares outside Japan. But the benchmark Nikkei is still an underperformer for the year, having shed 4 percent in 2010.
The Nikkei ended the day up 0.9 percent at 10,115.19, its highest close since June 21. It touched a five-month intraday high of 10,157.97 in the afternoon session.
The broader Topix rose 0.7 percent to 875.48.
Technicals have brightened after the Nikkei rose above resistance at the 200-day moving average last week for the first time since May. The next upside target is its June high of 10,251.90. After that a 61.8 percent retracement of its April to September sell-off lies at 10,410.49.
The Nikkei continued to attract buying from foreign investors as concerns over the yen's rise wane.
The yen was trading at 83.45 against the dollar, moving away from its all-time high of 79.75 recorded in 1995.
"It was symbolic to see shares such as Komatsu rising convincingly today. I believe foreigner investor appetite is very strong in taking more positions in Japanese stocks," said Takashi Ohba, senior strategist at Okasan Securities.
"Originally I expected China's tightening measure to raise banks' reserve requirements would hurt Komatsu, which has a close link to the country, but today's strong rise proves that overall demand for Japanese stocks is very strong."
Komatsu, the world's second-biggest construction machinery maker, at one stage hit its highest in more than two years at 2,323 yen, before ending up 2.9 percent at 2,311 yen.
The Nikkei was also supported after an EU and IMF agreement on Sunday to help bail out Ireland with loans to tackle its banking and budget crisis in a bid to protect Europe's financial stability.
Still, the market hesitated to chase Tokyo stocks too high before a Japanese national holiday on Tuesday and a holiday in the United States later in the week.
"Japanese shares look a bit overheated. We need to be careful about buying extensively from current levels. In the short term, we are more likely to see some profit-taking," said Yutaka Miura, senior technical analyst at Mizuho Securities.
"Domestic institutional investors are also looking for chances to unload their positions in stocks," Miura said.
Hitachi Ltd gained 1.8 percent to 404 yen after Britain's Sunday Times newspaper said a consortium of Hitachi and British infrastructure firm John Laing are preferred bidders on a contract to replace Britain's aging intercity express trains. The replacement will cost 7.5 billion pounds ($12 billion), the paper said.
Among losers, MS&AD Insurance Group Holdings Inc, Japan's largest property-casualty insurer, plummeted 8.2 percent to 1,949 yen after the company revised its full-year net profit forecast to 40 billion yen ($479 million) from 51 billion yen previously.
It booked worse-than-expected earnings on Friday for the April-September first half of the current financial year.
(Additional reporting by Antoni Slodkowski; Editing by Chris Gallagher)
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