* China factory growth at 2 yr high supports market * Apple suppliers mostly recover after hit from iPhone sales * Toshiba favoured on news of GE thermal energy tie-up By Sophie Knight TOKYO, Jan 24 Japan's Nikkei share average edged up by on Thursday morning after strong China data helped firms with high exposure to the world's second-largest economy, while Japanese suppliers to Apple Inc mostly recovered after a drop on disappointing iPhone sales figures. The benchmark kicked into positive territory after data showed growth in China's factory sector hit a two-year high in January, helping Komatsu Ltd advance 1.1 percent, while the Nikkei China 50 outperformed with a gain of 0.5 percent. The HSBC flash purchasing managers' index (PMI) rose to 51.9 in January, the highest since January 2011 and above the 50-point level that shows accelerating growth in the sector from the previous month. By the midday break, the Nikkei had edged up 0.4 percent to 10,524.74, breaking back above the 10,500 level after hitting a three-week closing low on Wednesday in its third straight day of declines. "China helped, but basically three days of losses has created a nice dip-buying opportunity. It's very easy to get in there today," said Masato Futoi, head of cash equity trading at Tokai Tokyo Securities. "The underlying tone is still bullish, so even bad news about Apple or whatever doesn't hit stocks too hard." After coming under pressure in early trading, Apple suppliers Murata Manufacturing Co Ltd, Foster Electric Co Ltd and Taiyo Yuden Co Ltd were up by the midday break. However, Ibiden Co Ltd, which makes printed circuit boards for the iPhone, slid 4.4 percent. Apple said it had shipped 47.8 million iPhones in the December quarter, below the roughly 50 million predicted by Wall Street analysts, which sent its shares skidding 10 percent in extended trading as investors cut their exposure to the stock. The iPhone has been outpaced by competitor and supplier Samsung Electronics Co Ltd's Galaxy Note II, now the world's most popular smartphone, whose sales contributed to an 89 percent rise in the Korean company's operating profit in the December quarter. Wacom Co Ltd, the maker of the Galaxy's touchscreen, jumped 8.4 percent after hiking its full-year operating profit forecast by nearly a fifth to 7.8 billion yen ($88 million), citing strong sales on the back of a weaker yen. Quarterly earnings figures are beginning to trickle in, with Japan's earnings reporting moving into higher gear next week. "There's a lack of incentives at the moment as everyone is waiting for the results," said Masayuki Doshida, senior market analyst at Rakuten Securities. Yaskawa Electric Corp fell as much as 8.8 percent to a one-month low after the company reported a 39 percent drop in operating profit in the nine months to December, hurt by weak demand for servo motors in China and Europe. By midday it had pared some of the loss, down 3.5 percent at 798 yen. Toshiba Corp was also in focus, gaining 1.6 percent after the Nikkei business daily said it will discuss forming a joint venture with General Electric Co to develop and sell combined cycle gas turbines. WHERE TO NOW? The Nikkei has dropped 3.9 percent from a 32-month high of 10,952.31 hit on Jan. 15, the peak of a steep rally starting in mid-November, when Shinzo Abe, who became prime minister after winning a landslide election victory in December, began calling for a weaker yen and aggressive monetary easing. The Bank of Japan responded to pressure from Abe by announcing a 2 percent inflation target at its policy meeting on Tuesday. It also committed to open-ended easing from 2014, a decision that disappointed some investors hoping for more immediate action. "The market is going to be boxed in for a while as it changes from a speculative market to one based on fundamentals. We have to wait to see (the weaker yen) reflected in company profits," Futoi of Tokai Tokyo Securities said. Many analysts are still bullish on the Japanese market, including those at Goldman Sachs, who said the Topix index could rise as high as 1,270, or 43 percent above its current level, if the yen weakened to 100-110 against the dollar, in a report published on Thursday. The broader Topix edged up 0.2 percent to 889.39 on Thursday morning. Goldman Sachs revised its official 12-month estimate for the index to 1,100 to 1,000, assuming 88 yen to the dollar, saying that the economy should be given a boost by the 10 trillion yen ($113 billion) fiscal stimulus plan announced by the Abe government. "While foreign buying has accelerated, total cash and futures buying is not yet excessive, and while 'underweight Japan' gaps have narrowed, most international equity funds remain underweight," the report said. ($1 = 88.88500 Japanese yen)
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