Nikkei gains as Fed stimulus seen staying, small caps continue slide

Wed Jun 26, 2013 9:43pm EDT

* Market continues to monitor Chinese shares
    * Mothers Market extends small-to-cap decline

    By Ayai Tomisawa
    TOKYO, June 27 (Reuters) - Japan's Nikkei share average rose
on Thursday, bouncing back from a three-day losing streak, after
U.S. stocks rose on perceptions the Federal Reserve will not
scale back stimulus anytime soon. 
    The Nikkei was up 0.5 percent at 12,899.17 after
dropping 3 percent over the past three days hit by worries about
a cash crunch in China and ongoing concerns about the Fed's plan
to trim its massive bond buying programme.
    Recently battered stocks such as real estate rose, with
Sumitomo Realty & Development Co gaining 3.5 percent
and Mitsui Fudosan Co adding 2.8 percent.
    Exporters with high exposure to China, which tumbled early
this week, also gained ground. Komatsu Ltd rose 3.1
percent and Hitachi Construction Machinery Co advanced
2.3 percent.
    U.S. stocks rose on weaker-than-expected GDP data
reinforcing a view the economy is not strong enough for the Fed 
to begin scaling back its $85 billion a month bond buying. 
    Analysts said the Nikkei is seeing a technical rebound and
bargain hunting, but upside is capped as investors are still
concerned that China is facing a liquidity crisis.
    The Topix added 0.8 percent to 1,077.81.
    "If China shares are weak today again, the Japanese market
could see volatility and the Nikkei could be dragged down to
around 12,800," said Kenichi Hirano, a strategist at Tachibana
Securities. "The entire day's mood will depend on how Shanghai
shares will perform."
    Weakness in small-to-mid size stocks was again apparent on
Thursday, with the Mothers Market falling 6.5 percent
after nosediving 12 percent on the previous day.
    "Retail investors are reducing their positions on companies
which they had bought merely on expectations for growth," said
Hideyuki Okoshi, general manager at Chibagin Securities. "The
start-up market can be even more volatile than the overall
market, so investors don't want to be left behind when the
market is sliding."
    Biochemical companies, which had attracted buying recently,
dropped on profit-taking. PeptiDream Inc extended its
losses, dropping 19 percent after stumbling 28 percent on the
previous day. DNA Chip Research Inc sank 12 percent and
Chiome Bioscience dropped 18 percent.
    The benchmark Nikkei has dropped more than 19 percent since
reaching a 5-1/2-year high on May 23, hurt by slowing growth in
China, fears of a pullback in U.S. stimulus, and disappointment
over the Japanese government's recently announced growth
strategy. However, it is still up about 24 percent this year.