By Aiko Hayashi
TOKYO, Sept 30 (Reuters) - Japanese stocks will likely end 2009 about 4 percent above current levels and up around 19 percent for the year, with analysts and fund managers saying the worst is likely over for the market, a Reuters poll showed.
But most also said that more gains may be limited as the global economy struggles to stage a steadfast recovery.
The benchmark Nikkei average is expected to end the year at 10,500 points, based on the median forecast of 23 market participants polled by Reuters in the past week.
That would be 18.5 percent higher than its end-2008 level of 8,859.56, and up 4 percent from its 10,133 close on Wednesday. A similar poll in June had forecast 10,000 at year-end.
Many of the analysts polled said the more than 40 percent rally that the Nikkei has booked since its March lows likely signals the end of a bear market, though they remained cautious about the prospects for a bullish run-up going forward.
"Worries about a financial meltdown, triggered by the Lehman shock, have receded," said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC.
"But I expect the stock market to be range-bound from next year on until a recovery in corporate capital spending becomes apparent. The impact of economic stimulus measures taken globally will likely start fading from the latter part of this year."
This month marked the one-year anniversary of Lehman Brothers bankruptcy, which exacerbated a crisis that led to a trillion dollar rescue of the global financial system.
But the Nikkei, like other stock markets around the world, has rallied from a 26-year closing low of just over 7,000 in March to touch a year intraday high of 10,767.00 at the end of August -- a jump of over 50 percent.
NEW GOVERNMENT POLICIES, YEN
In addition to a recovery in the global economy, many respondents cited uncertainty among investors about the policies of Japan's new government and a stronger yen among factors that may hinder further gains in the market.
Japanese banking shares have been under heavy pressure since financial services minister Shizuka Kamei expressed interest in introducing a moratorium on the repayment of the principal on mortgages and bank loans to help struggling small and midsize businesses.
Japan's Democratic Party thrashed the long-ruling Liberal Democratic Party in an election last month, and its policies are a major focus among market participants in Tokyo.
"Japan's economy has entered a recovery phase after hitting a floor in January-March of 2009," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.
"But the new government's policies and their impact on the stock market remain a concern going forward. There's a possibility the government will halt some of the previous administration's economic stimulus measures and that would be negative in the short term."
The impact of a stronger yen on earnings of exporter companies is another concern for market players as a stronger Japanese currency eats into exporters' profits when they are repatriated.
On Monday, the dollar dropped to as low as 88.23 yen, its weakest since late January when it hit a 13-year low of 87.10 yen, as investors unwound short yen positions and as expectations faded that Japan would intervene at these levels.
ECONOMIC RECOVERY AND BULL MARKET
Most poll participants agreed that the Nikkei would rise still more by next June, reaching 11,650 -- not far from where it was in September 2008 when Lehman Brothers failed.
"As we head further into next year we'll see earnings improve still more, but that also requires the U.S. economy to improve," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.
Others like Hideyuki Ishiguro, Okasan Securities' supervisor of the investment information department, was more optimistic on the outlook for the market.
"I think there's a good chance that it's the start of a bull market. Advanced nations will have a small pace of growth, while advancing nations will grow more sharply," Ishiguro said.
(For poll data click on) (For other stories from the global stock markets poll click on ) (Additional reporting by Tokyo Markets team; Editing by Jon Loades-Carter)