TOKYO, Jan 17 (Reuters) - Japan's Nikkei average is expected to bounce back towards eight-month highs on Monday after JP Morgan's strong earnings lifted Wall Street, helping offset the effects on sentiment of China's latest move to tighten credit.
Banks and other financials are expected to outperform as JP Morgan's results bolstered their U.S. peers on Friday, helping soften the negative impact of reports showing soft U.S. December retail sales and consumer sentiment hurt by higher gasoline prices.
Nikkei futures traded in Chicago closed at 10,595, up 0.9 percent from 10,500 in Osaka.
"Strong results at the start of the U.S. earnings season, which hint that the U.S. economy is picking up steam, are boosting investors' appetite for risky assets," said Hiroichi Nishi, general manager at Nikko Cordial Securities.
"This positive sentiment will likely help Nikkei recoup last week's losses and foreign buying is likely going to continue, pushing it higher this week," said Nishi.
Analysts say the Nikkei is expected to move in a range of 10,450-10,650 after it fell 0.9 percent on Friday on a surprisingly weak settlement of options for January.
In early Asian trade the dollar was a shade stronger against the yen. A weaker yen could help Japanese exporters, market players said.
The Nikkei's resistance looms at 10,620.57, an eight-month high hit last week. If that level is breached, the next target investors are eyeing is 10,638.23, a high hit in May last year.
The Nikkei has gained some 2 percent this year and is up 15 percent since the start of November -- a rally driven by foreign funds, which have boosted their stance on Japanese stocks to neutral from underweight.
The market's resilience will be tested this week when a number of major U.S. banks report results. ----------------------MARKET SNAPSHOT @ 2211 GMT ------------
LAST PCT CHG NET CHG S&P 500 1293.24 0.74% 9.480 USD/JPY 82.88 0.1% 0.080 10-YR US TSY YLD 3.3309 -- 0.000 SPOT GOLD 1360.85 0.00% 0.000 US CRUDE 91.6 0.22% 0.140 DOW JONES 11787.38 0.47% 55.48 ------------------------------------------------------------- > Banks lead S&P 500 to seventh week of gains > Euro paces best week since March 2009; gains ahead > Treasuries retreat as investors choose stocks > Gold falls 1 pct after China's tightening > Brent scales $99 before expiry, U.S. oil rises
STOCKS TO WATCH
-- Mitsubishi Motors Corp
Mitsubishi Motors will streamline production in developed nations while increasing output in emerging markets including Brazil and India under a new global strategy, the Nikkei business daily said.
-- Toyota Motor Corp
Toyota may have to move some production abroad if it cannot make cars profitably in Japan because of a strong yen, its President Akio Toyoda said.
-- GE Hitachi Nuclear Energy
The world market for new nuclear power plant orders will recover in three to five years and "come back strong" after that, a senior executive of GE Hitachi Nuclear Energy said on Friday.
That would mean new plant construction starting in five to 10 years, Danny Roderick, the company's senior vice president of nuclear plant projects, told Reuters.
-- Showa Shell Sekiyu KK
Seibu Oil Co Ltd, a Showa Shell group refiner, does not plan to shut the 120,000 barrels-per-day crude distillation unit (CDU) at its sole Yamaguchi refinery for a turnaround in 2011, a company official said on Friday. (Reporting by Antoni Slodkowski; Editing by Michael Watson)