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Nikkei edges up after tankan but resistance strong

Published 09/28/2010, 10:27 PM
Updated 09/28/2010, 10:32 PM

* Yen falls back below 84, Nikkei pares gains in response

* Buying of futures by hedge funds leading trade - analyst

* Dec tankan forecast raises hopes for BOJ move - analyst

* Nikkei seen weak over longer-term, 9,600 resistance strong

* TEPCO falls on reports of huge share issue

By Elaine Lies

TOKYO, Sept 29 (Reuters) - The Nikkei average clawed up 0.6 percent on Wednesday on window-dressing before the end of Japan's fiscal first half, but it pared gains as the yen's retreat faded and resistance held strong.

A brief additional boost came from a poor December outlook in the Bank of Japan's "tankan" survey of business sentiment, which some market players said could increase expectations the central bank will discuss further moves to ease monetary policy at its meeting next week.

But market players said the longer-term outlook for the benchmark was dark, given the dollar's persistent weakness, and that resistance around 9,600 -- the upper level of the Nikkei's daily Ichimoku cloud -- would hold.

"Of course we have to see what happens when the BOJ meets next week, and over the next few weeks there's likely to be some support along the way from intervention," said Hideyuki Ishiguro, strategist at Okasan Securities.

"But the effectiveness of intervention is likely to wear off the more it's done, and the BOJ may not have so many options in terms of policy left. So the Nikkei could test the downside later this year."

The benchmark Nikkei was up 59.51 points at 9,555.27 by the lunch break, after earlier gaining as much as 1.4 percent when the dollar had risen back above 84 yen. The broader Topix gained 0.4 percent to 846.22.

The Nikkei's worst performer was Tokyo Electric Power Co (TEPCO), which tumbled 7.6 percent to 2,108 yen after media reported that Asia's largest utility was planning a multibillion dollar share issue to fund investments.

The dollar briefly edged back above 84 yen after falling as far as 83.68 yen on electronic trading platform EBS on Tuesday, its lowest since Japanese authorities intervened to weaken their currency two weeks ago. But it subsequently fell back to around 83.85 yen.

The Federal Reserve is likely preparing a fresh round of quantitative easing steps to be announced at the end of its November meeting, a report by influential hedge fund adviser Medley Global Advisors said on Tuesday, a market source told Reuters.

These expectations grew in the wake of figures showing a decline in U.S. consumer confidence to the lowest level since February, pushing the dollar below 84 yen.

Japanese manufacturers' confidence improved for a sixth straight quarter, the BOJ's tankan survey showed, but they turned negative on the outlook in a sign that yen strength could derail the fragile economic recovery.

"The Nikkei's rising on the slightly weaker yen, and there's also probably some window-dressing ahead of the end of the first half of the business year," said Norihiro Fujito, general manager at Mitsubishi UFJ Morgan Stanley Securities.

He added that much of Wednesday's action was driven by buying in futures by foreign investors, most likely hedge funds, with virtually no activity by institutional investors.

IMPACT OF YEN STRENGTH

Other market players noted that big manufacturers surveyed in the tankan expect the dollar to average 89.66 yen in the financial year to next March, weaker than the forecast of 90.18 yen in the June survey but still sharply higher than the current level.

"Of course the currency rate, along with the generally sluggish global economy, raises quite a risk for half-year corporate earnings, which will start coming out next month," said Okasan's Ishiguro.

"Should these be poor, the Nikkei might break below 9,000 sometime in November."

Exporters edged higher, with Canon Inc rising 1.4 percent to 3,935 yen and Sony Corp also up 1.4 percent, at 2,628 yen.

Shares of Toyo Engineering Corp shot up 5.7 percent to 279 yen after the Nikkei business daily reported that it and trading house Marubeni Corp are set to win a contract to construct Mongolia's first oil refinery.

Marubeni rose 1.3 percent to 480 yen.

Elpida Memory Inc jumped 5.4 percent to 960 yen after the company said it would start mass production of advance DRAM chips in December, putting it ahead of bigger rival Samsung Electronics in technology.

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