TOKYO, Oct 7 (Reuters) - Japan's Nikkei average is likely to rise on Wednesday, with investors encouraged by gains in U.S. stocks amid signs the global economy is recovering and optimism that U.S. corporate earnings will beat expectations.
Aeon Co is likely to draw attention after Japan's No. 2 retailer reported a 39.5 percent fall in first-half operating profit, hurt by prolonged weak consumer spending, but reiterated its full-year outlook above the market forecast.
"In the short term, the battle ground between buyers and sellers related to 'SQ' has shifted to around 9,750 after a rise in U.S. stocks," said Kenichi Hirano, operating officer at Tachibana Securities.
The closely watched options settlement price, known in Japan as the special quotation or "SQ", is calculated from the opening prices of the 225 shares in the Nikkei average on the second Friday of the month.
"But gains are likely to be limited as the dollar/yen is trading at the 88 yen level, though short-covering in financial shares will probably continue," Hirano said.
Nikkei futures traded in Chicago ended Tuesday at 9,745, up 0.7 percent from the Osaka close, pointing to a higher start.
The benchmark Nikkei is likely to move between 9,600 and 9,800 on Wednesday, market participants said. It inched up 0.2 percent the previous day to end at 9,691.80. Last week, the index shed 5.2 percent, its worst weekly loss in about three months.
The yen stood around 88.70 yen to the dollar in early Asia trade. It hit an eight-month high of 88.23 yen to the greenback last week.
Many Japanese exporters have set their exchange rate assumptions for the dollar around 90-95 yen for the current fiscal year to March. Investors fret about a stronger yen as it curbs exporters' profits when they are repatriated.
The S&P 500 Index gained 1.4 percent on Tuesday after news that Australia became the first G20 country to raise interest rates since the onset of the financial crisis, saying that the worst danger for the economy had passed.
That underscored for many that the global economy was on the mend and the economic optimism spurred gains in energy and other commodities, lifting shares of oil and resource companies. STOCKS TO WATCH
-- Chugai Pharmaceutical Co
Chugai raised its full-year net profit forecast to 46 billion yen ($518 million) from 40 billion yen, citing robust demand for its products including the influenza drug Tamiflu.
-- Murata Manufacturing Co Ltd
Japanese electronic parts maker Murata Manufacturing, which counts Nokia and auto-parts makers among its clients, said orders in the quarter just ended were stronger than expected. (Reporting by Aiko Hayashi; Editing by Chris Gallagher)