Bargain-hunting drives Nikkei high, investors remain cautious

* Nikkei rises 0.7 pct for day, 1.9 pct for week
* Market keenly watching Abe-Obama talks
* Financials retreat after recent gains

By Tomo Uetake
TOKYO, Feb 22 (Reuters) - Japan's Nikkei average rose on
Friday as investors scooped up bargains after the index fell
sharply the previous session, though they remained cautious
ahead of the Japan-U.S. summit, the Bank of Japan governor
nomination and Italy's elections.
The Nikkei ended 0.7 percent higher at 11,385.94
after dropping as much as 1.2 percent during the session on
concerns over economic growth in the United States and euro
zone. For the week, the benchmark advanced 1.9 percent, the
second straight weekly gain.
"Some exporters, which were big losers in the morning
session, trimmed early losses towards the market close. The
market was still keen to buy on the dip," said Naoki Fujiwara,
chief fund manager at Shinkin Asset Management.
Mazda Motor Corp, which during the morning was down
as much as 3.7 percent, recovered to end 1.1 percent higher.
But investors were cautiously watching to see if the United
States backs Japan's plans to revive its economy, which have
driven the yen down more than 16 percent against the U.S. dollar
since mid-November. Uncertainty around this weekend's Italian
elections also capped demand.
"Investors are watching how the long-term interest rates,
CDS spreads and the euro will move after the election," said
Nobuhiko Kuramochi, a strategist at Mizuho Securities.
After the Nikkei this week hit a record high and tested the
11,500- level, "the market is vulnerable to profit-taking
triggered by negative overseas factors," he said.

ABE-OBAMA SUMMIT
Prime Minister Shinzo Abe meets U.S. President Barack Obama
in Washington later on Friday, seeking to put a strong alliance
on display and looking for support for his economic revival
policies of big spending and hyper-easy monetary policy.

"Investors will be watching headlines out of the meeting,
and they are highly sensitive to what they would mean to the
Japanese economy," said Hiroichi Nishi, an assistant general
manager at SMBC Nikko Securities.
The broader Topix, which was in negative territory
until the last minutes of Friday's session, added 0.1 percent to
963.48.
Trading volume on the Topix was relatively light, with 3.3
billion shares changing hands, compared with last week's daily
average volume of 4.03 billion shares.
Financial stocks, beneficiaries of Abe's reflationary
policy, lost ground. Mitsubishi UFJ Financial Group
slipped 1.4 percent and Sumitomo Mitsui Financial Group
fell 0.7 percent.
Some of the bigger exporters were also sold off, with Toyota
Motor Corp falling 0.7 percent.
Nikko Securities' Nishi said that market sentiment was also
undermined by worries over how long the U.S. Federal Reserve
will keep quantitative easing in place. In the U.S., data from
jobless claims to factory activity and consumer price inflation
pointed to slow economic growth and supported the argument for
the Fed to maintain its monetary stimulus.
Analysts said that most investors were also holding fire
until the nomination of a new Bank of Japan governor next week.
"It hasn't changed my medium-term view towards Japanese
stocks. I still expect the Nikkei to hit 12,000 by the end of
March," Yuya Tsuchida, a strategist of Toyo Securities, said.
Tosoh Corp jumped 5.6 percent after the Nikkei
business daily reported the chemical maker had developed
materials that can prevent lithium-ion batteries from bursting
or catching fire under extremely hot conditions.
The report said that with Boeing Co 's 787 Dreamliner
grounded due to problems with its lithium-ion batteries, Tosoh's
newly developed materials could gain attention as a possible
solution.