February 19, 2019 / 3:00 AM / 6 months ago

Nikkei inches up to fresh 2-month high on U.S.-China trade optimism

TOKYO, Feb 19 (Reuters) - Japanese shares edged up to new two-month peaks on Tuesday, supported by hopes of a breakthrough in U.S.-China trade talks, with investors snatching up defensive shares amid lingering worries about the global economic slowdown.

While markets were without firm directional cues as U.S. markets shut on Monday for a public holiday, sentiment remained broadly positive with investors looking for more clues from trade negotiations between Washington and Beijing.

A new round of talks between the United States and China to resolve their trade war will take place in Washington on Tuesday, with follow-up sessions at a higher level later in the week, the White House said on Monday.

Japan’s Nikkei share average added as much as 0.2 percent to 21,326.11, its highest since mid-December, then ended the morning session, up 0.1 percent on the day.

“It is still difficult to buy foreign demand-led sectors. But I think domestic demand-led firms will do well because the government is likely to take lots of steps to support the economy to counter the planned hikes in consumption tax,” said Tsuyoshi Shimizu, head of research at Asset Management One.

“Earnings expectations have fallen a bit too much. It seems like markets expect Japanese corporate earnings to fall about five percent in the next financial year, but I do think they can grow by almost 10 percent,” he added.

Defensive shares gained with East Japan Railway and Central Japan Railway rising 1.5 percent and 1.4 percent, respectively.

Many exporters were softer as investors remain wary that slowdowns in China and elsewhere could hurt their top line.

Robot maker Fanuc fell 0.7 percent and Panasonic dropped 0.8 percent. Shin-etsu Chemical shed 0.7 percent.

The latest Reuters monthly tankan, which showed corporate sentiment in February slipped to the lowest levels since late 2016, also weighed on investor sentiment.

The monthly poll found manufacturers’ mood sliding for a fourth straight month and service-sector morale falling for the first time in four months, in a sign companies took a hit from weakening demand both at home and abroad amid slowing global growth and trade frictions.

Other notable movers included Softbank Group, which fell 3.5 percent after the Wall Street Journal reported that its key investors, including Saudi Arabia’s sovereign wealth fund, were unhappy with the high valuation of its flagship Vision Fund.

The broader Topix edged up 0.2 percent to 1,604.54, which was also the highest in two months. (Editing by Jacqueline Wong)

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