Nikkei rallies to 1-month high on China, U.S. optimism

Thu May 22, 2014 10:18pm EDT

* China factory data, U.S. housing data underpins Nikkei
    * Yen's retreat adds support, but more declines may be
needed to extend Nikkei's gains
    * Real estate, banks and brokerages lead gains
    * Sony falls after CEO fails to impress investors with
restructuring plans

    By Hideyuki Sano
    TOKYO, May 23 (Reuters) - Japan's Nikkei share average
surged to a four-week high on Friday morning, thanks to upbeat
economic data in Japan's two biggest trade partners, with the
yen's retreat rounding out an encouraging array of positive
catalysts. 
    The Nikkei share average rose 1.0 percent to
14,475.90, pulling further away from a one-month low of 13,964
hit on Wednesday and briefly tapping levels not seen since April
25.
    The market took off on the tailwind of surveys showing
China's factory sector had its best performance in five months
in May and U.S. factory output growth hitting its fastest pace
since February 2011.. 
    The yen fell back to 101.77 to the dollar from a
three-month high of 100.805 hit on Wednesday. The retreat has
calmed concerns the yen could break above its February high and
beyond the psychologically important 100 mark, which would be
negative for Japanese exporters' earnings.
    "I would say the yen needs to return to 103-104 yen levels
for the Nikkei to rise further," said Hisashi Kuroda, general
manager of equity investment at Meiji Yasuda Asset Management.
    "But I think the market's correction has run its course. The
earning guidances have been conservative although the actual
earnings after the end of this quarter is likely to be better,"
he added.
    A rise above the April 21 high of 14,650 in the Nikkei is
necessary to reverse its downtrend since the beginning of this
year, though traders are not willing to bet that the time is
ripe for a major rebound given the uncertainty on the economy
and policy.
    The Japanese economy looks set to slow this quarter after
last month's hike in the sales tax, and investor aren't certain
how quickly domestic consumption will recover.
    Another focus is on growth strategies Prime Minister Shinzo
Abe has pledged to unveil next month, with investors bracing for
the prospects of disappointment given that the first series he
announced last year fell short of market expectations.
    "A lot of people have suspicions that the latest rise is
just short-covering, as the market is rising without (positive
domestic) factors," said Yasuo Sakuma, porfolio manager at
Bayview Asset Management.
    Indeed, the top perfomers on Friday were those that had
fallen sharply so far this year.
    Real estate firms, securities brokerages and banks led the
gains on Friday, rising 2.6 percent, 1.9 percent
 and 1.9 percent respectively.
    Mitsui Fudosan rose 2.9 percent, Nomura Holdings
 gained 2.5 percent and Mitsubishi UFJ Financial Group
 advanced 2.5 percent. 
    Sony bucked the trend, however, falling 2.4 percent
after chief executive officer Kazuo Hirai failed to impress
investors about his structural reform plans at the company's
conference on earnings the previous day. 
    Sony has pledged that a blast of restructuring in its
electronics division this year will return the troubled unit to
profit but investors remained sceptical after having been
disappointed many times by the company's overly optimistic
forecasts in the past. 
    The broader Topix rose 1.3 percent to 1,184.04 while
the new JPX-Nikkei Index 400 gained as much to
10,804.62.

 (Editing by Shri Navaratnam)
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