Nikkei rises to 8-week high on policy easing hopes

* ANA, Kawasaki Kisen dive on reported new share issue plans
* Market supported by ECB, BOJ easing hopes
* Financials lead gains, banks helped by brokerage upgrade

By Sophie Knight
TOKYO, July 3 (Reuters) - Japan's Nikkei share average rose
to an 8-week high on Tuesday as investors bet major central
banks will roll out more growth-boosting stimulus measures
following unexpectedly poor U.S. factory data.
Insurers posted the biggest gains, while All Nippon Airways
Co Ltd brought up the rear, plummeting 13.8 percent on
a report that it would raise up to 200 billion yen ($2.5
billion) in a new share issue.
The Nikkei settled up 0.7 percent at 9,066.59
points, its highest close since it ended at around 9,181 on May
8, but it fell short of its Monday intraday high.
"The ISM figures in the U.S. were worse than predicted, so
there are increased expectations for QE3 (a third round of
quantitative easing), as well as a rate cut from the European
Central Bank," said Yoshihiro Ito, chief strategist at Okasan
Online Securities.
U.S. manufacturing activity shrank in June for the first
time in nearly three years as new orders plummeted, with the
Institute for Supply Management index of national factory
activity falling to 49.7 from 53.5 the month before,
undershooting the forecast of 52.0.
Similar surveys released on Monday also showed factory
slowdowns in Europe, much of Asia and Brazil.
Data on Tuesday showing that China's services sector
expanded at its fastest rate in three months in June lent some
support, however, outweighing pessimism about a slowdown in the
world's second largest economy after weekend data showed
industrial activity at its lowest level in seven months.
"Asian markets were all given a boost when the China
(services) PMI came in better than expected in the morning, but
I think the Japanese market is getting overheated, so the upside
is very heavy," said Fumiyuki Nakanishi, general manager of
investment and research at SMBC Friend Securities.
The Nikkei's 14-day relative strength index hit 63.31, its
highest in more than three months. An RSI of over 70 is
considered overbought.
Renesas Electronics Corp shot up nearly 10 percent,
the troubled chipmaker's latest volatile shift, after sources
said the company would announce a sweeping restructuring plan
later on Tuesday.
Kawasaki Kisen Kaisha Ltd, one of Japan's top three
shippers, plummeted 14.7 percent as investors were unimpressed
by the prospect of a 26 percent share dilution after the company
said it would issue 200 million new shares on Monday.
An upgrade for Japan's three biggest banks from Daiwa
Securities helped the sector put on 1.8 percent, with
MUFG rising 3.2 percent.
Nikon Corp rose 3.1 percent after Nomura Securities
noted exports of digital cameras had grown 19.5 percent in May
compared to a year earlier, propelled by the popularity of
high-end single-lens reflex cameras.
With the European Central Bank widely expected to cut rates
this week, some investors think riskier assets around the world
are likely to be on firm footing despite fresh doubts about the
euro zone's deal announced last week.
"Investors have been unwinding risk-off trading since early
June and I think that will continue for now despite concerns
over the global economy in the medium term," said Soichiro
Monji, chief strategist at Daiwa SB Investments.
"Compared to one month ago, Europe has clearly made some
progress ... After a likely ECB rate cut, investors may shift
funds out of bunds to riskier assets," he added.
The broader Topix index gained 1 percent to 777.11,
its highest close since May 8.

TEASING OR EASING?
Hopes that the Bank of Japan will introduce further easing
measures at its policy meeting concluding on July 12 have begun
to dim on signs of an upturn in the domestic economy.
"Yesterday's tankan data showed manufacturing sentiment had
improved, and markets both in Japan and overseas are looking a
lot stronger than they were - why would the BOJ ease now?" said
Nakanishi of SMBC Friend Securities.
A BOJ survey released on Monday showed sentiment among
Japanese manufacturers improved in the April-June quarter for
the first time in three quarters, while domestically-oriented
shares have led the rebound from early June, when the Topix hit
a 28-year low.
Although some investors will be disappointed if the BOJ does
not at least expand its asset purchasing programme, others are
putting their faith in the post-tsunami reconstruction drive to
buoy the market.
"Concerns about overseas demand has turned the focus inward,
and once rebuilding begins in earnest domestic demand is going
to be more significant for the Nikkei than anything the BOJ can
do," said Ito of Okasan Online Securities.