Nikkei edges up from Thursday's sell-off; Sharp leads the pack

* Sharp shares jump on report of capital tie-up with Intel
* Japan Tobacco rises on reassuring Imperial Tobacco update
* Japan Airlines falls below initial offering price
* Nikkei falls 0.5 percent on the week, first loss for 3-wks
* China trade worries weigh on the market

By Sophie Knight
TOKYO, Sept 21 (Reuters) - Japan's Nikkei average edged up
on Friday, rebounding from a sharp drop in the previous session
as investors took comfort from steadiness in U.S. stocks,
shrugging off fears over soft manufacturing data from China,
Europe and the United States.
Embattled TV maker Sharp Corp gained 5 percent on
short-covering after the Mainichi newspaper said it was in talks
with U.S. chipmaker Intel Corp on a capital alliance
that would offer a possible lifeline to the firm as discussions
with Taiwan's Hon Hai Precision Industry Co Ltd stall.
Gains in Japan Tobacco Inc, up 2.9 percent after
rival Imperial Tobacco rose 2.7 percent overnight
following a reassuring trading update, also supported the
market.
The Nikkei advanced 0.3 percent to 9,110.00 after
shedding 1.6 percent on Thursday in a move that wiped out gains
made after the Bank of Japan eased monetary policy on Wednesday.
The benchmark ended 0.5 percent down on the week, marking
its first weekly loss in three weeks.
"We're not seeing big gains from the BOJ's easing because we
need to see that the BOJ is really committed to weakening the
yen and fighting deflation," said Takashi Oba, senior strategist
of Okasan Securities.
"Even though they increased their asset buying by 10
trillion yen, it still looks like peanuts in comparison to the
Fed's easing programme."
The broader Topix index gained 0.3 percent to 756.38
in moderate trade, with volume at 99.2 percent of its 90-day
average. It ended 0.1 percent down on the week.
"Once investors cover their short positions, the market will
shift to fundamentals. But unfortunately, fundamentals are not
good at the moment," said Shun Maruyama, chief Japan equity
strategist at BNP Paribas.
"With the second quarter results announcements around
mid-October to early November, people will start taking short
positions ... (and) expecting earnings to be revised down."
For the year, the Nikkei is up 7.7 percent, trailing a 16.1
percent rise in the U.S. S&P 500 and a 12.3 percent gain
in the pan-European STOXX Europe 600.
Still, Japanese equities have a similar valuation to
European shares, with a 12-month forward price-to-earnings ratio
of 11.1, versus STOXX Europe 600's 11 and S&P 500's 12.9,
according to Thomson Reuters Datastream.

CHINA PLAYS
Concern about the anti-Japan protests over a territorial
dispute in China, as well the sputtering economy, continued to
weigh on the market.
Optimism around Japan Airlines Co Ltd 's public
offering on Wednesday turned sour as the stock lost 4.3 percent,
falling 3 percent below its initial price, after the company
said it would reduce its October flights to China and the Nikkei
paper said customers had already cancelled 12,000 flights.
One trader said the stock, which was the most-traded on the
main board by turnover, was also being sold off as it had
reached its foreign ownership limit of 33 percent.
Panasonic Corp said it did not know when it will be
able to resume production at its protest-damaged factory in the
Chinese port city of Qingdao, and it could not yet give an
estimate on how the plant closure will affect its earnings.
The stock eased 2.3 per c ent.
About 40 percent of Japanese firms see friction with China
affecting their business plans, with some considering pulling
out of the country and shifting operations elsewhere, a Reuters
poll showed.
Construction machinery makers Komatsu Ltd and
Hitachi Construction Machinery Co Ltd, which have
significant exposure to China, shed 1.6 and 1.3 percent
respectively.
Steelmakers, whose fortunes are also closely tied
to Chinese and global demand, lost 1.5 percent.
However, in an encouraging sign for the coming week, the
Nikkei's 25-day moving average was about to cross above its
200-day moving average, coalescing around the 9,000 level to
form a bullish signal known as a "golden cross".