Nikkei rallies as Softbank losses offset by China data

* Softbank drops, investors fear may pay too much for Sprint
Nextel
* Komatsu strong as Nikkei says to it can meet guidance on
earnings
* Chinese data fuels hopes for monetary easing in Japan's
main market

By Sophie Knight
TOKYO, Oct 15 (Reuters) - Japan's Nikkei rallied 0.5 percent
on Monday as investors turned buyers after a broad sell-off last
week, though concerns lingered over the earnings outlook for
Japanese corporates.
Buyers were encouraged by Chinese inflation data that
signalled Beijing had room to ease policy further to shore up
growth in Japan's main export market.
The index's advance was held back, however, by Softbank
Corp's 5.3 percent fall to a 5-month closing low due to
fears that the mobile phone provider would pay too much to buy
out Sprint Nextel Corp, after it was reported that the
deal could be worth $20 billion.
Softbank's stock hit an 8-month intraday low as sources said
the Japanese mobile carrier would provide $8 billion of new
capital and acquire an additional $12 billion worth of shares
from Sprint shareholders, funded by a 1.65 trillion yen ($21.1
billion) loan from four banks.
"It's the same reaction as when they said they were going to
buy Vodafone a few years ago, everyone came out and said it was
far too expensive," said Fumiyuki Nakanishi, general manager of
investment and research at SMBC Friend Securities.
The purchase would give Softbank a 70 percent stake and
imply the U.S. company was worth about two-thirds more than its
market capitalisation at Friday's close.
"(However), I think investors will realise (Softbank CEO)
Masayoshi Son is making the right decision further down the
road," he added.
The telecommunications sector fell 1.7 percent as
investors bet that rivals such as KDDI Corp, which lost
2.4 percent, would suffer from Softbank's increased
competitiveness as it expands overseas.
The Nikkei closed 0.5 percent up at 8,577.93 yen,
recovering from a 2-month low struck on Friday after losing 3.7
percent on the week due to worries over profit warnings at the
outset of the earnings season.
"Today people are just consolidating after a lot of bad news
last week, because there's no reason to keep on selling today,"
said Kyoya Okazawa head of global equities at BNP Paribas.
"There are also growing expectations that the Bank of Japan
will ease again at the end of the month, which is helping shares
most sensitive to the economic climate today."
Cyclicals were in favour, with the iron and steel sector
moving up 1.6 percent while shippers rose
1.8 percent. The broader Topix index firmed 0.7 percent
to 722.99 in moderate trade, with volume striking 102.3 percent
of the average of the last 90 days.

CHINA WORRIES
Risk sentiment was also boosted by hopes for economic
stimulus from China after the country's annual rate of consumer
price inflation came in line with expectations of 1.9 percent in
September, while producer prices fell for the seventh straight
month.
Chinese trade data released over the weekend was also
positive, with exports growing at roughly twice the rate
expected in September.
For all the worries over the outlook for earnings generally,
construction machinery maker Komatsu Ltd gained 4.3
percent and was the second-most traded stock by turnover on the
main board after the Nikkei business daily said the firm's
operating profit for the first half would likely meet company
guidance of around 111 billion yen ($1.4 billion).
"Meeting expectations in this kind of market is actually a
positive. People are just glad it's not any worse," said
Yoshihiko Tabei, chief analyst at Kazaka Securities.
Hopes for Chinese stimulus and higher demand helped
automakers Nissan Motor Co, Honda Motor Co and
Toyota Motor Corp gain between 1.4 a n d 3.9 p e rcent,
after suffering during the past month from concerns about the
fall-out on their sales in China as a result of territorial
dispute between Beijing and Tokyo.
By last Thursday, when Toyota said its sales to China in
September had been nearly halved from the same month a year ago,
the firm's share price had lost up to 12.4 percent since the
dispute flared in mid-September. '
Weakness in carmakers, precision machinery and other
economically sensitive sectors have weighed on the market as a
global slowdown and a persistently high yen triggered profit
warnings ahead of the earnings season.
That has left stocks looking reasonable, with the stocks on
the first section of the Tokyo Stock Exchange, made up of
Japan's biggest companies, trading on average below book value
with a price-to-book ratio of 0.9, according to Thomson Reuters
Starmine, compared to the S&P 500's price-to-book ratio of 2.2.