Nikkei bounces, but recent tumult puts end to 9-month winning streak

Fri May 31, 2013 2:54am EDT

* Nikkei down 0.6 pct this month
    * Volatility expected to persist for while longer
    * Market now in correction-phase - analysts
    * Fast Retailing rebounds after Thursday's 11 pct slide

    By Dominic Lau
    TOKYO, May 31 (Reuters) - Japan's Nikkei share average
recovered some lost ground on Friday as beaten-down stocks
rebounded, but the recent market rout saw the benchmark post its
first monthly fall in 10 months.
    The Nikkei, which plunged 5.2 percent to a five-week
low on Thursday, gained 1.4 percent to 13,774.54 as weak U.S.
economic data overnight eased concerns that the Federal Reserve
would soon start unwinding its monthly $85 billion asset
purchases.
    Friday's gain, however, was not enough to extend the
benchmark's monthly winning streak to a 10th straight month,
which would have been its longest such run since 1972. It was
down 0.6 percent in May.
    Societe Generale said the most traded Nikkei index stock
options was a call with a strike price of 12,250, 11 percent
below Friday's close, and with a June expiry. The next most
traded was another put at 13,000, followed by another put at
12,000.
    The index has fallen 13.6 percent since hitting a 5-1/2-year
peak on May 23, with analysts saying the size of the fall
signals the market is now in a correction phase. It ended 7.3
percent lower the same day, its biggest one-day decline since
the March 2011 earthquake and tsunami.
    The selloff, which has been accompanied by extreme
volatility, was triggered by the Fed stimulus worries and
slowing growth in China, Japan's second-biggest export market.
    Still, the Nikkei is up 11.4 percent since the Bank of
Japan's radical monetary expansion campaign was announced on
April 4 and has risen 32.5 percent so far this year, driven by
Prime Minister Shinzo Abe's aggressive fiscal and monetary
expansionary policies, dubbed "Abenomics". 
    Buoyed by the rally, Japanese stocks' 12-month forward
price-to-earnings rose to 16.3, from 13.9 at the end of 2012 and
almost level with its 10-year average of 16.4, according to
Thomson Reuters Datastream.
    "There was a little bit of rebound today. People were
covering their shorts, or buying into names like Fast
Retailing," a Tokyo-based trader said. "People are picking up
stocks that they like on weakness."
    But he said the market would remain volatile until the
Japanese upper house election in July, adding that it was an
event risk, even though the Abe-led Liberal Democratic Party was
expected to win.
    Nomura Securities said the selloff in stocks "probably
constitutes" a challenge to Abenomics.
    "Although the government remains popular, investor euphoria
towards Abenomics appears to be giving way to a more measured
stance," the brokerage wrote in a note.
                   
    FAST FASHION
    Fast Retailing, the owner of casual fashion chain
Uniqlo, climbed 5.1 percent after Thursday's 11 percent slump.
Traders said on Thursday that some investors could be using the
stock, which has the highest weighting in the benchmark, to help
push down the Nikkei.
    Sentiment was also boosted after sources told Reuters on
Thursday that Japan's Government Pension Investment Fund, with
more than $1 trillion in assets, was considering a more flexible
approach to allocations, which could let its investment in
domestic stocks grow in rallying markets. 
    Industrial robot maker Fanuc Corp, wireless
operator SoftBank Corp and semiconductor equipment
maker Tokyo Electron rebounded, up between 1.6 and 4.1
percent.
    Sony Corp, which was heavily traded, gained 2.1
percent after cable television network CNBC said the company has
tapped Morgan Stanley and Citigroup to help sound out options
for its entertainment business.
    The broader Topix added 0.1 percent to 1,135.78,
with 4.15 billion shares changing hands, down from Thursday's
4.48 billion and last week's daily average of 6.21 billion. 
    "The Topix hit an air pocket but isn't making a route
change," Nicholas Smith, Japan strategist at CLSA, wrote in a
note. "Investors on the sidelines should regard this as a great
entry point, including domestic funds."
    Bank of America Merrill Lynch was also bullish on the
market, saying it saw a fall in the Nikkei to below 13,800 as a
buying opportunity.
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