Nikkei hits 3-month closing high; Elpida surges

Passers-by are seen through a car window reflecting Christmas lights as they walk in front of an electric board displaying movements of the Japanese yen's exchange rate against the U.S. dollar outside a brokerage in Tokyo December 9, 2011.

TOKYO (Reuters) - Japan's Nikkei share average hit its highest closing level in nearly three months on Tuesday on expectations that a Greek debt swap deal will still be reached even after European finance ministers rejected an offer by Greece's private creditors.

Struggling Elpida Memory Inc 6665.T surged 4.6 percent after a media report that the Japanese chipmaker is in the final stage of merger talks with U.S. rival Micron Technology (MU.O) and Taiwan's Nanya Technology (2408.TW).

Elpida, which is grappling with tumbling memory chip prices and tough competition from Asian rivals, declined to comment on the report.

The Nikkei average .N225 closed 0.2 percent higher at 8,785.33, unscathed by news that euro zone finance ministers took issue with the average coupon on new bonds offered by private Greek bondholders, effectively raising the stakes of the negotiations and the risk of a messy Greek default.

"Despite the fact that they haven't come to a deal yet, comments out of Europe suggested that there are many points of agreement between the parties and the euro rose above 100 yen, which was positive for Japan's markets," said Yumi Nishimura, senior technical analyst at Daiwa Securities.

Highlighting the risk posed by the euro zone debt crisis, the Bank of Japan on Tuesday cut its economic forecasts for the year ending in March and the following year.

"There's resistance for the Nikkei around the 8,800 level in the short-term ... The Nikkei's gains right now are part of a board reversal and for it to climb higher it needs some more positive factors out of Greece and strong earnings from the U.S.," Nishimura said.

Of the 77 S&P 500 .SPX firms that have reported quarterly results so far, 61 percent of them either beat or met market expectations, according to Thomson Reuters StarMine data. That was down from some 70 percent in the previous quarter.

Recent improvements in U.S. economic data lifted the gloom, however.

The Nikkei is up 3.9 percent so far in January. If this month were to finish with the current gains, it would be the best January performance since 1999.

The broader Topix .TOPX added 0.1 percent to 757.40 on Tuesday.

Trading volume on the main board moderated, with 1.84 billion shares changing hands, down from 2.01 billion shares on Monday and 2.6 billion on Friday.

TOYOTA, SHIPPERS BOUNCE

Toyota Motor Corp (7203.T) advanced 2.7 percent to hit its highest level in nearly five months and was the heaviest traded stock by turnover on the main board as improvements in the U.S. market have made investors become less bearish on the auto sector.

The sector was hit hard last year by supply disruptions following a massive earthquake in Japan and floods in Thailand.

"Toyota's valuation has gone down ... But meanwhile, the U.S. market has begun to improve," a sales trader at a foreign brokerage said.

Toyota shares are up 8.9 percent so far this month after losing more than 20 percent last year. However, technical indicators showed the shares were trading in "overbought" territory, with the 14-day relative strength index at 71.3.

Rival Nissan Motor Co (7201.T) gained 0.6 percent on Tuesday.

In terms of valuations, Toyota carried a 12-month forward price-to-book ratio of 1.07, much lower than Nissan's 2.37, data from Thomson Reuters Datastream showed.

The shipping sector .ISHIP.T also rebounded, up 2.3 percent to become the best-performing sector on the main board, with market participants citing a recovery in freight rates on the export route from the Middle East Gulf to Japan.

Mitsui O.S.K. Lines Ltd (9104.T) advanced 0.7 percent, Nippon Yusen KK (9101.T) added 2.1 percent and Kawasaki Kisen Kaisha Ltd (9107.T) surged 3.7 percent.

Despite Tuesday's rise, the Topix shippers subindex is still down 1.5 percent this month after shedding 47 percent last year.

(Editing by Chris Gallagher)