TOKYO, Aug 19 (Reuters) - Japan's Nikkei average is likely to extend gains on Wednesday after better-than-expected results from big U.S. retailers such as Home Depot offset an unexpected drop in housing starts and lifted Wall Street.
Sanyo Electric Co will likely be in focus after the Nikkei business daily reported Toyota Motor Corp would procure batteries for hybrid vehicles from Sanyo, as Toyota's battery joint venture cannot keep up with demand.
"The market will likely be firm and move to consolidate around the current level after positive retail earnings out of the United States and a rebound in oil prices," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC.
"Also, the U.S. housing data didn't really spark worries about the outlook for the economy because even though overall housing starts were down, those for single-family homes increased."
Nikkei futures traded in Chicago edged up 0.2 percent from the Osaka close to 10,320 on Tuesday, pointing to a slightly higher start.
Market participants expect the benchmark Nikkei to trade between 10,100 and 10,400 on Wednesday. It edged up 0.2 percent the previous day to 10,284.96.
The S&P 500 Index rose 1 percent on Tuesday, boosted by better-than-expected results from retailers Home Depot Inc and Target Corp, which were largely due to cost-cutting and tight control over inventory.
U.S. government data showed construction starts for single-family dwellings, the worst-hit part of the housing market, rose 1.7 percent last month from June to an annual rate of 490,000 units -- the highest since October.
But a 13.3 percent drop in new multifamily home projects pushed overall housing starts down 1 percent to an annual rate of 581,000 units after two months of gains. STOCKS TO WATCH
-- Sony Corp
Sony will launch a slimmer, cheaper version of its PlayStation 3 game console next month, hoping to jumpstart sales and win back market share from rivals Microsoft and Nintendo.
-- Sumitomo Mitsui Financial Group (SMFG)
SMFG has sounded out Daiwa Securities Group about taking majority control of their investment banking joint venture, the Yomiuri newspaper said on Wednesday.
-- Don Quijote Co Ltd
The discount store chain said it expects its operating profit to rise 4.8 percent to 18 billion yen ($190 million) for the year ending in June 2010, in line with an average forecast by seven analysts polled by Thomson Reuters.
For the year just ended, the chain posted a 17.2 billion yen operating profit, up 7.5 percent from the previous year, as its stores attracted increasingly thrifty consumers. ($1=94.70 Yen) (Reporting by Aiko Hayashi; Editing by Chris Gallagher)