Nikkei hits fresh 5 1/2-yr high on weak yen, govt upgrade of economic view

Sun May 19, 2013 11:25pm EDT

* Improved assessment of economy lifts mood
    * Interest rate sensitive stocks fall on rising yield
    * Report of Japan-India resuming talks on nuclear
co-operation pact buoys

    By Ayai Tomisawa
    TOKYO, May 20 (Reuters) - The Nikkei share average surged to
a fresh 5-1/2 year high on Monday morning, buoyed by further
weakness in the yen and as the Japanese government raised its
assessment of the economy in May for the first time in two
months.
    Signs of an improving U.S. economy and Wall Street's record
closing high on Friday cemented the positive mood in markets. 
    By the midday break, the Nikkei had climbed 1.4
percent to 15,347.01 after rising as high as 15,356.31, the
highest since December 2007.
    The Nikkei has gained 48 percent this year, and it has added
more than 8 percent since May 9, when the dollar broke above the
100-yen level.
    The government's monthly report said that economy is
gradually recovering, which was an upgrade from last month, when
it said the economy was showing signs of recovery but still had
some weak spots. 
    The upgrade highlights the success of Prime Minister Shinzo
Abe's policies, which combine stimulus spending with aggressive
monetary easing to pump-prime the economy and are resulting in a
sharp weakening of the yen.
    Exporters were in demand, with Toyota Motor Corp 
rising 2.2 percent, Sony Corp jumping 5.9 percent and
Komatsu Ltd advancing 2.1 percent after the dollar
broke above the 103-yen level on Friday buoyed by strong U.S.
consumer sentiment data.
    "It's not like we don't think of the possibility of a
pullback given the recent rises in the market, but both domestic
and overseas economies are recovering, so the market will
probably keep rising," said Fujio Ando, an analyst at Chibagin
Securities.
    Adding to the positive mood was a Nikkei report that Japan
and India are expected to agree at their summit meeting this
month to resume talks toward a civilian nuclear cooperation
pact. Manufacturers of nuclear reactors benefited on the report,
with Toshiba Corp up 3.8 percent, Mitsubishi Heavy
Industries 3.2 percent higher and Hitachi Ltd 
rising 3.4 percent.
     The broader Topix added 1.4 percent to 1,270.53.
    "Strength in the U.S. market and signs of a recovery in the
U.S. economy are serving as a tailwind to the Nikkei's further
gains," said Yutaka Miura, a senior technical analyst at Mizuho
Securities. 
    Upbeat data from the United States, Japan's major export
market, has helped underpin the Nikkei in recent sessions. 
    Data on Friday showed U.S. consumer sentiment rose to its
highest in nearly six years, while a gauge of future economic
activity rose in April to a near five-year high. 
    Analysts said that investors are increasingly becoming
confident about the prospects for higher Japanese corporate
earnings for the  fiscal year through March, as the weakening
yen has improved the outlook for many exporters. 
    They expect an average operating profit rise of 30 percent
from the previous year, compared with the companies'
conservative forecasts of a 20 percent increase in their
operating profits.
    Many exporters have used assumptions of around 90-95 yen to
the dollar.
     The dollar last traded at 102.80 yen, taking a breather
from its recent sharp rally, but still not far off a 4 1/2 year
high of 103.32 tapped on Friday.
    Bucking the market, interest rate sensitive stocks lost
ground after the yield on the 10-year cash bonds rose two basis
points to 0.820 percent on Monday. Mitsubishi
Estate Co fell 1.7 percent, Mitsui Fudosan Co 
dropped 2.2 percent and Sumitomo Mitsui Financial Group 
shed 0.5 percent
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