Nikkei scales 21-month high, led by exporters and financials

Thu Dec 27, 2012 6:59am GMT

* Nikkei rises 0.9 pct, Topix up 0.8 pct
    * Nikkei up 22.1 percent this year
    * Insurances gain as strength in market lifts value of stock
holding
    * Some buying 'irrational' - trader

    By Ayai Tomisawa
    TOKYO, Dec 27 (Reuters) - The Nikkei share average ended at
a 21-month high on Thursday, led by exporters and financials, as
the new Japanese prime minister's vow to battle deflation and a
strong currency buoyed investor risk appetite. 
    The Nikkei advanced 0.9 percent to 10,322.98, rising
for the third consecutive session and taking the index deeper
into "overbought" territory, with its 14-day relative strength
index at 77.7, far above 70 which is considered overbought and
often indicates an imminent pullback. 
    The benchmark has advanced 19.2 percent over the past six
weeks, taking the year-to-date increase for the Nikkei to 22.1
percent, outpacing a 12.9 percent rise in the U.S. S&P 500
 and a 14.7 percent gain in the pan-European STOXX Europe
600.
    It is on track to log its best yearly gain since 2005.
    "People are back in the office today...and putting on some
positions based on what we saw after the cabinet appointment and
LDP policy decision," a dealer at a foreign brokerage said,
referring to the ruling party.
    Finance Minister Taro Aso said Prime Minister Shinzo Abe has
ordered him to compile a stimulus package without sticking to
the previous government's cap on new bond issues, signalling a
more aggressive policy to kick-start the ailing economy.
    Financials such as insurance stocks rose. Dai-ichi Life
Insurance Co added 2.0 percent and T&D Holdings Inc
 gained 3.9 percent.
    Exporters benefiting from a weaker yen included Toyota Motor
Corp, Honda Motor Co, TDK Corp and
Panasonic Corp, all up between 1.0 and 2.6 percent.
    The yen hit a more than two-year low of 85.835 yen to the
dollar. A weaker yen helps lift exporters' overseas earnings
when repatriated, improving their competitiveness, particularly
against South Korean and Chinese rivals. 
    Helped by the drop in the yen, the pace of deterioration in
Japanese companies' earnings outlook has slowed further in
December. 
    Their one-month earnings momentum - analysts' earnings
upgrades minus downgrades as a total of estimates - stood at
-7.2 percent, versus -10.9 percent in November and -12.2 percent
in December.
    
    PROFIT-TAKING
    On top of Thursday's gains in stocks that benefited from the
new government's policy, shares in other sectors such as paper
companies and personal finance companies also attracted buying.
    But traders said such buying could fizzle anytime soon as
investors seem to have overlooked fundamentals. 
    "Even junk stocks like consumer finances are rising...
individual traders who are trading short-term could be buying
them while forgetting that their earnings are far from rosy,"
said Makoto Kikuchi, the chief executive of Myojo Asset
Management. 
    "They may be hoping that the LDP-led government will be
relaxing regulations on the sector, but I don't think it's
rational buying, and it could trigger profit-taking in any
moment," Kikuchi said. 
    Aiful Corp gained 2.9 percent, while Orient Corp
 added 5.3 percent.
    The paper sector was the best sectoral performer,
gaining 3.5 percent. Nippon Paper Group climbed 3.8 percent,
Rengo Co advanced 3.4 percent and Oji Holdings 
jumped 5.0 percent.
    The broader Topix gained 0.8 percent to 854.09 in
active trade, with 3.47 billion shares changing hands, close to
last week's average daily volume of 3.53 billion shares.
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