Nikkei set to gain but may struggle at 200-day average

A businessman talks on the phone in front of an electronic board displaying share prices outside a brokerage in Tokyo April 8, 2011.

TOKYO (Reuters) - The Nikkei average looks set to extend gains on Thursday on a rise in Wall Street shares, but market players say it may struggle to stay above its 200-day moving average and could lose momentum due to profit-taking after hitting a 7-week high.

A rally in global equities after Greece's parliament passed an austerity package on Wednesday is expected to lift Japanese shares, but market players warn it is premature to count on it rising above the 200-day moving average, a break of which could signal a long-term uptrend.

"People have been already buying the Nikkei on expectations of window-dressing buying at the end of month. So there could be profit-taking in the latter part of the session today," said Kazuhiro Takahashi, general manager at Daiwa Securities.

Takahashi said the Nikkei could run out of momentum soon, given that in the past two months it hit a peak at the beginning of month.

Investors may hold off buying for now as Greece's parliament will vote on a second package of laws required to implement specific budget measures and asset sales later on Thursday.

The benchmark Nikkei .N225 rose 1.5 percent on Wednesday to a seven-week high of 9,797.26, just shy of the 9,800 mark many market players have regarded as the top end of its core range since the March 11 earthquake. The broader Topix .TOPX gained 1.7 percent to 844.11.

The Nikkei's 200-day moving average is at 9,859. Analysts said it is expected to trade in a 9,750-9,900 range on Thursday.

Yen-denominated Nikkei futures in Chicago ended at 9,860 compared to their Osaka close of 9,790.

Nagayuki Yamagishi, an investment analyst at Mitsubishi UFJ Morgan Stanley Securities, said if the Nikkei fails to gain further the market could risk forming a bearish formation on charts called three Buddha, which is similar to a head and shoulders formation.

STOCKS TO WATCH

-- Tokyo Electric Power Co (9501.T)

The operator of the stricken nuclear plant said on Wednesday it might ask for further restrictions on power use if nuclear reactors in northwest Japan have to remain offline for a long period.

-- LCD makers

Hitachi Ltd (6501.T) wants to join ongoing talks between Toshiba Corp (6502.T) and Sony Corp (6758.T) to combine their units that make small and mid-size LCD panels, the Nikkei business daily reported.

On June 7, Reuters reported, citing sources, that Toshiba and Sony are in talks to combine their units that make small and mid-size LCD panels for smartphones and tablet computers and may sell a stake in the new entity to the Japanese government for about $1.2 billion.

-- Kyushu Electric Power (9508.T), other power companies

The governor of Saga, home to Kyushu Electric's 36-year-old plant in the town of Genkai, showed a positive stance about restarting the plant, Japanese media reported.

It would be the first to restart among 35 nuclear reactors shut for regular maintenance or kept idle since the March earthquake and tsunami.

(Reporting by Hideyuki Sano; Editing by Michael Watson)