Nikkei jumps 2 pct to three-week high on China GDP, softer yen

Thu Oct 18, 2012 2:40am EDT

* Softer yen continues to spur gains for exporters
    * China GDP matches consensus; on track for year target
    * Stocks sold-off on fears of bad earnings see recovery

    By Sophie Knight
    TOKYO, Oct 18 (Reuters) - Japan's Nikkei share average leapt
to a three-week high after China's GDP figures reassured with no
nasty surprises, prompting investors to buy back heavily
battered shares that an increasingly soft yen made even more
attractive. 
    The benchmark rose 2 percent to 8,982.86 in heavy volume,
sailing above its 25-day moving average as the yen softened to
79 versus the dollar, a fillip for exporters whose overseas
earnings have been crimped by the strength of the Japanese
currency.
    By the end of the day, 2.08 billion shares had changed hands
on the main board, the highest since Sept. 14, after the U.S.
Federal Reserve announced their latest round of bond purchases
known as "QE3".
    "We're seeing lots of volume again today...the weak yen is a
reflection of the atmosphere being risk-on," said Stefan
Worrall, director of cash sales at Credit Suisse in Tokyo. 
    "You've got China up, Europe looking a bit better, earnings
in the U.S. looking better, and you've got this massive,
exciting M&A that itself involves a massive currency bet," he
added, referring to Softbank Corp's $20 billion
purchase of a 70 percent stake in Sprint Nextel Corp. 
    China's economy slowed for a seventh straight quarter in
July-September, missing the government's target for the first
time since the depths of the global financial crisis, but other
data released on Thursday pointed to a year-end rebound.
 
    The GDP figures were also in line with market expectations,
helping Nikkei China 50, an index of 50 Japanese
companies with large exposure to the country, put on 2.5
percent. It is outperforming the benchmark with a jump of 6.2
percent so far this week. 
    "There is still extremely negative sentiment around the
global slowdown, particularly around China... but I think that
pessimism has been largely priced in, making Japanese stocks
cheap," said Tetsuro Ii, CEO of Commons Assets Management.
    "I think it's a good idea to buy over the next month or so
while things are still cheap, and before we have to contend with
the U.S. fiscal cliff and other obstacles," Ii said.  
    The Nikkei has been hit in recent weeks as investors fret
over profit warnings and likely lacklustre earnings to come, and
the index lost 3.7 percent last week, its biggest weekly drop
since May.
    But earnings in the United States this week have not been as
bad as expected, boosting sentiment. Of the 14 percent of S&P
500 companies that have already reported profits, 65 percent
have beaten analysts' expectations, above the long-term average
of 62 percent.
    Moreover, many stocks are being bought back after their
forecast cuts were not quite as severe as feared. 
    A case in point, Yaskawa Electric Corp rose 6.7
percent, a 3-1/2-month high, for its fifth day of gains, after
its downward revision of its full-year profit forecast fell
within market expectations, leading investors to judge its
recent sell-off as overdone.
    "They revise down, everyone knows it's going to revise down,
and the stock rips. This lends a tone to anything else which is
expected to have sharp revisions down," said a trader at a
foreign bank who did not wish to be named.
    In just the last four sessions, the Nikkei has clawed back
above the 61.9 percent retracement of its fall between September
19, after the Fed's announcement of QE3, and last Friday.
    
    TIME TO MOVE?
    Upbeat U.S. housing and other economic data has also
improved sentiment for risk assets, decreasing appetite for the
"safe haven" yen, which is holding a whisker above a five-month
low against the euro and a tad higher than a two-month trough
versus the dollar.
    Automakers were strong, with Honda Motor Co jumping
4 percent on the back of a more attractive exchange rate. Toyota
Motor Co likewise added 2.5 percent to a three-week
high, in spite of a report that it is looking to cut production
by 200,000 cars this year due to lower demand in China.
 
    Elsewhere, Nissin Electric Co Ltd rose 4.6 percent
after JPMorgan upgraded the LCD screen maker to "overweight"
from "neutral", saying it was likely to score record high
earnings in 2013 and that the share price's fall of 19 percent
over the last three months was overdone.
   The broader Topix climbed 1.7 percent to 752.30 in
heavy trade, with volume at 132.7 percent of its 90-day average.
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