Nikkei set to move narrowly, eyes on yen

TOKYO (Reuters) - Japan's Nikkei is likely to move narrowly on Tuesday and hold above support near a key retracement level amid a dearth of trading cues, with eyes on the currency market before the restart of U.S. trade after a holiday.

The euro fell in subdued trade on Monday, although it edged lower against the yen in early Asian trade, while the dollar also slipped slightly. <FRX/>

Market players said Tuesday trade was likely to be quiet, centered on individual shares rather than sectors, with perhaps some buying by retail investors.

"But Wednesday could be pretty active depending on what happens in the United States tonight, since there'll be two days' worth of pent-up market energy," said Kenichi Hirano, operating officer at Tachibana Securities.

"In particular, Nikkei options settle this Friday, so that could keep trade tomorrow fairly volatile."

Market players said on Monday that there are a large number of option triggers on Nikkei futures at 9,000 and 8,500, and that the market remains gamma short -- meaning traders need to follow market moves to hedge their books, often leading to volatile moves.

Hirano added that there are also a large number of options triggers at 9,250.

"So depending on what happens, the cash market could see short-covering emerge and rise as far as 9,500, or it could try the downside at 9,076."

The benchmark Nikkei .N225 is likely to move between 9,200 and 9,350. It closed at 9,266.78 on Monday.

Nikkei futures traded in Singapore closed at 9,205, down 0.6 percent from the Osaka close JNIc1. Chicago futures were closed due to a U.S. holiday on Monday.

The Nikkei closed above support at 9,200, roughly a 50 percent retracement of the move up from its March 2009 low to its high in April, for the second straight trading day on Monday, which some in the market took as an encouraging sign.

But technicals in general remain mixed, with trends unclear.

The Nikkei's slow stochastic, a measure of how oversold the market is and whether it is in a short-term up or down trend, is deep in oversold territory but pointing slightly up, while its MACD, a measure of market momentum, is falling.

STOCKS TO WATCH

-- Aeon Co (8267.T)

Aeon, Japan's second-biggest retailer, is expected to post a 2.5-fold jump in a quarterly profit to 22 billion yen ($251 million) on cost cuts, the Nikkei business daily reported on Tuesday.

-- Mitsubishi Corp (8058.T)

Mitsubishi, Japan's largest trading house, is close to selling its oil derivatives unit, a source familiar with the matter said.

Petro Diamond Risk Management Ltd (PDRM), Mitsubishi's British subsidiary that handles its hedging business, booked losses of about 23.9 billion yen from hedging jet fuel for bankrupt Japan Airlines in the business year that ended March 31.

-- Nippon Steel Corp (5401.T)

Nippon Steel, the world's second-biggest steelmaker, said it would start producing steel pipe and steel sheet piles in Vietnam to tap burgeoning infrastructure projects in Asia and Oceania countries.

-- Nippon Telegraph and Telephone Corp (9432.T), Panasonic Corp (6752.T)

NTT and Panasonic will allow users of their videoconferencing systems to connect with each other by adopting a single telecommunications protocol for such products, the Nikkei business daily said.

-- Fujitsu Ltd (6702.T)

In an effort to boost sales of its low-priced supercomputers, Fujitsu will allow software developers to run their programs on its hardware so they can examine performance, the Nikkei business daily reported.