Nikkei ends above key level for 1st time in 7 wks

* EU agreement lifts optimism
* Both Nikkei, Topix rally 1.5 pct
* But Nikkei still down 10.7 pct for the qtr, worst since Q3
2011

By Dominic Lau
TOKYO, June 29 (Reuters) - Japan's Nikkei average jumped 1.5
percent on Friday to close above the key 9,000 level for the
first time in seven weeks after European leaders agreed to take
emergency action to bring down borrowing costs for Italy and
Spain.
The Nikkei was down 10.7 percent this quarter, however, in
its worst quarterly performance since last year's July-September
period, though it is still up 6.5 percent so far this year.
"Obviously, you've got a quick snap reaction as shorts look
to cover. Whether this deal (in Europe) actually changes
anything is a big question. The problem is that longer-term
measures are needed," a trader at a European brokerage said,
referring to the euro zone agreement.
"One of the positives that you can take away is that the EU
is actually doing something rather than sitting around and
talking ... The problem is that the bailout fund hasn't got any
bigger. It doesn't do anything to fix the underlying problem."

Euro zone leaders agreed that the region's rescue funds
could be used to stabilise bond markets without forcing
countries that comply with EU budget rules to adopt extra
austerity measure or economic reforms.
They also agreed that the bloc's future permanent bailout
fund, the European Stability Mechanism, would be able to lend
directly to recapitalise banks without increasing a country's
budget deficit.
The Nikkei ended up 132.67 points at 9,006.78 after
trading as high as 9,044.04, r eversing a small decline at the
end of the morning session. Friday's gain took the index above
its 200-day moving average at 8,942.99, but it remained below
its 13-week moving average at 9,015.99.
U.S. stock index futures also bounced after the news, with
S&P futures up 1.3 percent and Dow Jones futures
up 1.1 percent.
Nomura Holdings, Japan's top investment bank,
surged 3.9 percent on Friday. It was also boosted by report
that Nomura will cut top managers' pay and is considering a
temporary halt to some operations as it looks to resolve a
costly insider trading scandal.
Mitsubishi UFJ Financial Group and Sumitomo Mitsui
Financial Group were up 1.6 and 0.9 percent
respectively.
Economy-sensitive exporters also enjoyed the bounce, with
Toyota Motor Corp up 2.6 percent and Honda Motor Co
adding 3.2 percent.
The broader Topix index climbed 1.5 percent to
770.08. Trading volume on the index hit a three-week high, with
nearly 2 billion shares changing hands.

Shun Maruyama, chief Japan equity strategist at BNP Paribas
in Tokyo, said short covering by investors would likely continue
until mid-July.
"The near-term target is 9,300 to 9,400. After the short
covering, we will have to look at fundamentals. These are not
necessarily good," he said.
"The market will also enter earnings season. Profit guidance
will not be so good."
Maruyama said the short selling ratio on Japanese stocks
currently stood at 27 percent, down from more than 30 percent in
May. Short covering tends to emerge when the ratio reaches 28 to
30 percent.