TOKYO (Reuters) - The Nikkei share average rose on Tuesday on speculation that China, Japan's largest export market, may soon launch a stimulus programme to avoid a sharp slowdown, with China-related stocks benefiting the most.
"The talk of a stimulus package in China has caused the whole of Asia to rally," a senior dealer at a European brokerage said.
The Nikkei .N225 reversed earlier losses to close 0.7 percent higher at 8,657.08, rising for the fourth-straight session. Tuesday's gains took the benchmark above its five-day moving average near 8,585 and out of "oversold" territory, with its 14-day relative strength index at 33.4.
The Nikkei China 50 index .NCHN, comprised of 50 Japanese companies with the most exposure to China, outperformed, up 1.1 percent. Construction equipment firms Komatsu Ltd (6301.T) and Hitachi Construction Machinery (6305.T) gained 3.2 percent and 4.2 percent, respectively.
However, Bank of America Merrill Lynch said in a note that the current slowdown in China was less severe than in 2008 after the collapse of U.S. investment bank Lehman Brothers, when Beijing launched a massive stimulus package to boost growth.
Panasonic Corp (6752.T) advanced 3.9 percent after the Nikkei business daily said the company plans to nearly halve its 7,000-strong workforce at its headquarters.
Troubled Renesas Electronics Corp (6723.T) was the biggest loser on the main board, however, slumping 16.4 percent to a record low after news that the chipmaker plans to raise more than 100 billion yen ($1.3 billion) to pay for a proposed restructuring.
Bank of America Merrill Lynch cut its price target on the chipmaker, citing concerns over a deterioration in its profit margins under the strategic alliance with Taiwan Semiconductor Manufacturing Co (2330.TW) and unclear guidance over restructuring. The brokerage kept its "underperform" rating.
According to research firm Data Explorers, Renesas was hard to short with 90 percent of the stock that is available to be borrowed out on loan as of May 25, while a trader said it cost 7.5 percent to borrow Renesas shares.
The broader Topix .TOPX rose 0.8 percent to 727.03.
Nearly 1.77 billion shares changed hands on the main board, up from a three-week low of 1.34 billion shares hit on Monday and last week's average of 1.66 billion.
Last week, the benchmark Nikkei logged its worst weekly losing streak in 20 years, and is down 15.6 percent since hitting a one-year high on March 27 on concerns over the impact of a possible Greek exit from the euro zone and a slowing global growth.
The shipping sector .ISHIP.T was the best sectoral performer on Tuesday, up 4.6 percent, partly after Credit Suisse upgraded three shippers to "outperform" from "neutral" and lifted the target prices of two of them.
Kawasaki Kisen Kaisha (9107.T), Nippon Yusen KK (9101.T) and Mitsui O.S.K. Lines (9104.T) gained between 4.4 percent and 5.8 percent.
The sector's one-month earnings momentum - analysts' earnings upgrades minus downgrades as a total of estimates - slowed to 15.8 percent from 25.5 percent last month, though it was still better than that of the Topix, Thomson Reuters Datastream data showed.
The earnings momentum for the Topix stood at 0.1 percent this month, down from 5.4 percent in April.
(Additional reporting by Sophie Knight; Editing by Chris Gallagher)