Nikkei gains over 1.5 percent on Fed hopes, German ruling optimism

Tue Sep 11, 2012 11:45pm EDT

* Investors favour stocks with less exposure to strong yen
    * Cyclicals, miners gain as Fed stimulus eyed
    * Steelmakers strong on sign of industry prices bottoming
out

    By Sophie Knight
    TOKYO, Sept 12 (Reuters) - Japan's Nikkei share average rose
1.5 percent on Wednesday morning, buoyed by hopes of further
stimulus from the U.S. Federal Reserve and expectations that
Germany's highest court will give the green light for the euro
zone's bailout fund.
    Investors bought stocks such as those of mining companies
which are seen as gaining the most should the Federal Reserve
announce a third round of quantitative easing at its meeting on
Thursday to reinvigorate the world's top economy.
    Demand was also high for shares of companies focused on the
domestic economy that are shielded from the effects of a
stronger yen, which is seen as a likely consequence of an easing
of U.S. monetary conditions by Fed chairman Ben Bernanke.
    "If the Fed eases, there's a high chance the yen will shoot
up, so we're seeing a continuing trend for domestic stocks as
well as some rebounds for stocks that were heavily sold off
yesterday," said Hiroyuki Fukunaga, CEO of Investrust.
    "I think Bernanke is usually quite eager to not crush hopes
or expectations, but if he does fail to announce QE3 it will
probably make the dollar firmer and that may well be a plus for
the Japanese market," he added.
    The Nikkei advanced to 8,935.53 , rising above its
14-day moving average at 8,891.90, while the broader Topix
 climbed 1.1 percent to 740.30. 
    Trading was relatively light on the main board, though, with
volume at 48.6 percent of its full-day average over the last 90
sessions.
    Investors have been wary of making big moves ahead of a
German constitutional court ruling on the legality of the
European Stability Mechanism (ESM) later on Wednesday, which
could threaten the euro zone's safety net if it is not
passed. 
    "I expected less buying today but it seems that people are
already expecting Germany to give the ESM the go-ahead, which
would alter the course of the euro and lead to a softer yen,"
said Fumiyuki Nakanishi, general manager of investment and
research at SMBC Friend Securities. "However, I think the upside
is still heavy as we're mostly seeing short-covering." 
    Steelmakers performed well after Baoshan Iron and Steel
, China's largest listed steelmaker, said it will
roll over its September steel prices to October after three
straight months of cuts, a move some analysts said was aimed at
stabilising a market hit by weak demand. 
    The iron and steel sub-index gained 1.3 percent,
with JFE Holdings Inc advancing 2.7 percent.
    
    BOJ MAY NOT BUDGE
    In another positive sign, Japan's core machinery orders,
which help gauge the strengthen of capital spending, rose 4.6
percent in July, outstripping a median market forecast of a 1.5
percent gain, in a sign that post-tsunami reconstruction in the
northeast of the country is bolstering demand. 
    However, other recent domestic economic indicators have been
disappointing, with the government cutting its economic outlook
for the first time in nearly a year at the end of August,
leaving some hoping for further easing from the BOJ at its next
policy meeting on Sept. 18 and 19.
    "The BOJ can't allow the yen to stay at 77 yen to the
dollar, and right now the Fed's decision could push it down as
far as 75," said Fukunaga of Investrust. 
    The yen was holding near a 3-1/2 month high of 77.70 hit on
Tuesday.
    However, with a national election looming, political
pressure on the central bank has slacked, leading many investors
to think it will stand pat on policy.
    The BOJ bought 25.5 billion yen worth of exchange-traded
funds on Tuesday to support the market, a common move when the
Topix index falls below 1 percent. The index then pared
gains shortly before close, ending 0.7 percent down.
    Mitsui High-tec Inc advanced 4.2 percent to a
four-month high after the producer of integrated circuit
leadframes raised its earnings guidance for the first half ended
July, citing increased demand for energy-saving products and an
insurance payment from last year's Thai floods. The company also
raised its full-year dividend forecast to 10 yen from 3 yen.
    Elsewhere, Oki Electric Industry Co Ltd slid 13
percent after the telecommunications company said on Tuesday it
will likely make a loss of 30.8 billion yen, or around $400
million, due to improper accounting at its Spanish unit over six
years, a much larger amount than the 8 billion yen estimated by
the company in August.