Nikkei slips but output recovery hopes lift car, steel sectors

A businessman walks past an electronic board displaying major market indices around the world outside a brokerage in Tokyo June 2, 2011.

TOKYO (Reuters) - The Nikkei average fell on Thursday after the Federal Reserve offered no hint of further easing monetary policy, though gains in car manufacturers and steelmakers on the back of hopes for production recovery offset the falls.

Nissan Motor (7201.T) rose 1.3 percent after Chief Executive Carlos Ghosn told a Reuters Summit the previous day that the company will forecast significantly higher sales for the year to next March in its earnings guidance on Thursday.

The benchmark Nikkei .N225 closed down 0.3 percent at 9,596.74 but managed to end above its 65-day moving average of 9,589 for a second straight day. The broader Topix index .TOPX fell 0.4 percent to 825.51.

Some said Japanese shares could be vulnerable to the end of the Fed's asset purchase program this month, as they have benefited from views that excess liquidity the Fed pumped into markets found its way to undervalued Japanese shares.

The Nikkei jumped 8 percent in November, the month when the Fed began its so-called quantitative easing.

But traders also said the market seemed resilient given the Nikkei's recovery even after a break of key support around 9,400 late last week.

"When it fell below 9,400 its fall could have accelerated and 9,400 could have become a strong resistance, but none of that happened," said Eiji Kinouchi, chief technical analyst at Daiwa Securities Capital Markets.

Although data from Japan's Ministry of Finance showed foreign investors sold 190.5 billion yen ($2.4 billion) of Japanese shares last week, their largest net selling in nine months, traders said Asian and European investors were detected buying on Thursday.

"We saw buybacks in banks and other major shares today. The mood in the market is clearly improving," said Masato Futoi, an equity trading manager at Tokai Tokyo Securities.

Japanese shares fared better than their peers in the United States and many others in Asia. Asia-Pacific shares fell 0.6 percent on Thursday .MIAPJ0000PUS while U.S. shares ended Wednesday down 0.6 percent .SPX.

The Nikkei has outperformed U.S. and Asian shares this month, and on the quarter too, though it was largely because Tokyo shares took a heavy beating in the weeks that followed the

March 11 earthquake.

In the April-June quarter so far the Nikkei is down 1.6 percent, compared with a 2.9 percent fall in the S&P 500 and a 4.4 percent fall in the MSCI index of Asia-Pacific stocks outside Japan.

Many market players think this catch-up move by the Nikkei may now be mostly over, and that Japanese shares will likely lack traction in the next quarter.

"I don't expect Tokyo shares to do any better than U.S. shares in the next quarter. I expect U.S. economic data to start improving almost at the same time as Japanese data," said Daiwa's Kinouchi.

The market is seen hobbled by fears that have gripped investors from Asia to America lately -- such as worries over the euro zone's debt problems, concerns about a prolonged period of sub-par U.S. growth, and fallout from monetary tightening in emerging economies.

But some market players think Japanese shares may outperform equities in other countries as the domestic economy and corporate earnings could post a sharp recovery in the coming quarters as recovery from the quake takes hold.

In one such sign, after the market closed Nissan forecast a better-than-expected 14.4 percent fall in annual operating profit, defying a quake-induced setback in the past few months and projecting another year of record sales.

Suzuki Motor (7269.T) jumped 3.1 percent after saying it expects an operating profit of 110 billion yen ($1.4 billion) for the year to next March 31, up from 106.9 billion yen last year and above Thomson Reuters Starmine's SmartEstimate of 96.3 billion yen.

The steelmaking sector .ISTEL.T gained 0.8 percent.

In the Tokyo Stock Exchange's first section, decliners outnumbered advancers by 945 to 577. Trade volume was 1.72 billion shares, in line with the average over the past six days.

($1 = 80.315 Japanese Yen)

(Reporting by Hideyuki Sano; Editing by Michael Watson)