Nikkei rises to 7-mth high above 9,500; in overbought territory

Wed Dec 5, 2012 10:12pm EST

* Nikkei and Topix both rise 0.8 pct
    * Nikkei enters "overbought" territory
    * Exporters lead gainers on softer yen
    * LDP looks set to win a majority on Dec. 16 election
    * Sharp up, Hon Hai reportedly still in talks

    By Dominic Lau
    TOKYO, Dec 6 (Reuters) - The Nikkei average climbed to a
seven-month high above the 9,500 mark on Thursday, buoyed by a
weaker yen on persistent speculation the central bank would
adopt bolder action to pull Japan out of deflation under a
likely new government.
    The Nikkei rose 0.8 percent to 9,541.21 by the
midday break, taking the index to "overbought" territory, with
its 14-day relative strength index at 70.4. Seventy or above is
deemed overbought, which often signals a possible pull back in
the near-term.
    Some market participants also said the move was not yet a
convincing break of 9,500, noting that the benchmark has pierced
the level in recent days only to end the day lower.
    "The market has been struggling with this 9,500 level on the
Nikkei a few times. We need a convincing breakthrough there
before it goes anywhere," a senior trader at a foreign bank
said.
    He added that volume has been thinning out lately, and his
buy and sell orders were even this morning. Domestic investors
have been selling exchange-traded funds so any further immediate
lift from the market would have to come from foreigners, he
said.
    Shinzo Abe, the leader of the main opposition Liberal
Democratic Party who is expected to win a Dec. 16 general
election, has been calling for the Bank of Japan to embark on
"unlimited easing" and set an inflation target of 2 percent. The
latest opinion polls showed the LDP was on course to win a solid
majority on its own. 
    His comments have weakened the yen over the past three
weeks, while the Nikkei has rallied 10.1 percent, led by
exporters.
    Foreign investors were net buyers of Japanese equities last
week for the third straight week. They bought a net 184.3
billion yen ($2.2 billion) of shares in the week through Dec. 1,
down from 275.8 billion yen in the previous week, finance
ministry data showed.
    "People in the market tend to get excited and buy equities
ahead of elections, just to get disappointed and offload them a
few months down the road. This happens every time," said Yuuki
Sakurai, chief executive of Fukoku Capital Management.
    "I don't think Abe's policies such as changing the BOJ law
are good for the market. On the contrary, further monetary
easing isn't going to solve any problems in Japan. If anything,
it will worsen the BOJ's balance sheet and prompt further
downgrades from rating agencies."
    
    EXPORTERS ASCEND
    Exporters in demand included Toyota Motor Corp,
camera and printer maker Canon Inc, air conditioner
maker Daikin Industries Ltd and Honda Motor Co
, up between 0.9 and 3.5 percent.
    The yen was quoted at 82.45 to the dollar after falling 0.7
percent to 82.46 yen on Wednesday. It touched a 7-1/2-month low
of 82.84 yen to the dollar on Nov. 22.
    Sharp Corp surged 5 percent to a two-month high
after a Taiwan newspaper quoted Hon Hai Precision Industry
 chairman as saying that Qualcomm's tie-up
with the struggling TV maker will not affect Hon Hai's talks
with Sharp to become its biggest shareholder. 
    Hon Hai's chairman reiterated that he expects to reach a
decision with Sharp before March 2013, the newspaper reported.
    The broader Topix advanced 0.8 percent to 788.10,
with 0.98 billion shares changing hands in the morning session
versus 1.84 billion for the full day of Wednesday and last
week's daily average of 2.01 billion.
    Adding to the positive mood, sentiment among Japanese
manufacturers has edged up for the first time since July, a
Reuters poll showed, in a sign that the economy may have
bottomed out even as sluggish global demand continues to weigh
on business confidence.    
    The benchmark Nikkei is up 12.8 percent this year, in line
with a 12.1 percent rise in the U.S. S&P 500 and a 13.2
percent gain in the pan-European STOXX Europe 600.
    But Japanese equities are more expensive than their European
peers, with a 12-month forward price-to-earnings ratio of 12.1
versus STOXX Europe 600's 11.1, data from Thomson Reuters
Datastream showed. The S&P 500 has a 12-month forward P/E of
12.5.
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