Nikkei gains 1.2 pct as earnings hopes help

* Eyes shifting to Japan's earnings season

* Nikkei's resistance seen at around 9,550, 9,800

* Nikkei moves away from oversold conditions

By Aiko Hayashi

TOKYO, July 26 (Reuters) - Japan's Nikkei average rose 1.2 percent on Monday, boosted by solid U.S. corporate earnings and hopes for results at home and after news that fewer-than-expected European banks failed stress tests.

As Japan's results season moves into higher gear this week banks, Sony Corp (6758.T) and Toyota Motor Corp (7203.T) were in focus after media reports on their earnings.

Banking stocks and Sony gained in line with the market but Toyota lagged, pressured by worries about the yen's strength against the dollar, one market player said.

European bank stress tests showed seven of 91 banks failed the tests, including ones in Greece and Spain, for an overall capital shortfall of $3.5 billion euros. [ID:nLDE66O078] [ID:nLDE66M1T3]

In initial market reaction in New York late on Friday, the cost of insuring the debt of large European banks fell further and the euro EUR= rose against the dollar.

"The results of the stress tests took us past the first round, so to speak, but that doesn't mean that they were credible enough to wipe away uncertainty about the financial situation in Europe," said Kenichi Hirano, operating officer at Tachibana Securities.

"While investors are trying to digest the implication of the test results, the market focus here is turning to domestic earnings results. If the Nikkei ends the day above its 25-day moving average, more gains can be expected."

The benchmark Nikkei .N225 added 115.05 points to 9,546.01. It rose 2.3 percent on Friday, snapping a five-day losing streak, but was up only 0.2 percent on the week.

Resistance is seen at the level of the Nikkei's 25-day moving average around 9,550. The 25-day moving average is a proxy for a one-month moving average and is closely watched in Japan.

The next target likely stands at 9,800, near a recent peak hit on July 14.

The broader Topix .TOPX gained 1.1 percent to 850.28.

In early Asia trade, the euro EURJPY=R hit a seven-week high against the yen on improved risk appetite after upbeat corporate results boosted equity markets. Players also found it easier to pick up the euro now that European bank stress test results were out of the way.

U.S. stocks rose about 1 percent on Friday as GE (GE.N) shares jumped after the U.S. conglomerate increased its quarterly dividend by 20 percent, spurring heavy institutional buying. [.N]

In Japan, charts have also grown brighter as the Nikkei pulled away from oversold territory, with its slow stochastic -- a measure of how oversold the market is and whether it is in a short-term up or down trend -- rising after a bullish cross.

The Nikkei's MACD, a measure of market momentum, pointed higher after a bearish cross, and its relative strength index (RSI) climbed to near 50, after approaching oversold levels from 30 and down this month.

"The market will likely rise initially and then move narrowly awaiting reaction in European with market players keeping an eye on currency moves," said Hiroichi Nishi, general manager of equity marketing at Nikko Cordial Securities.

EARNINGS HOPE

The market rose broadly, with a weaker yen helping shares of exporters that have a larger exposure to Europe. Canon Inc (7751.T) gained 3.2 percent to 3,555 yen and Olympus (7733.T) climbed 2.6 percent to 2,305 yen.

Shares of Sony Corp (6758.T) added 1.2 percent to 2,543 yen. The Nikkei business daily said on Monday the company will likely return to profitability in the April-June quarter, beating market expectations for an operating loss, on solid sales and cost cuts. [ID:nTOE66O00P]

Toyota Motor Corp (7203.T) rose 0.7 percent to 3,105 yen after the Nikkei said it is likely to have secured an operating profit of about 100 billion yen ($1.1 billion) in April-June, thanks to solid sales and a sharp recovery from the previous year's loss. [ID:nTOE66O007]

"Investors remain worried about the impact of currencies on earnings, even though sales figures are likely to be strong," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities, referring to share moves in Sony and Toyota.

The Nikkei business daily said Japan's three big banks are likely to have each achieved net profits of over 100 billion yen for the April-June period. [ID:nTOE66O003]

Sumitomo Mitsui Financial Group (8316.T) rose 1.2 percent to 2,550 yen and Mitsubishi UFJ Financial Group Inc (8306.T) also gained 1.2 percent to 412 yen. Mizuho Financial Group Inc (8411.T) was flat at 136 percent after earlier rising 1.5 percent. (Reporting by Aiko Hayashi; Editing by Edwina Gibbs)