Japan's Nikkei up 2 pct, tracking Wall Street

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By Taiga Uranaka

TOKYO, Feb 21 (Reuters) - Japanese shares rebounded on Thursday after sharp losses in the previous session, getting a boost from overnight gains on Wall Street.

Bank of Ikeda (8375.T: Quote, Profile, Research, Stock Buzz) and Senshu Bank (8372.OS: Quote, Profile, Research, Stock Buzz) both jumped more than 10 percent after the two Osaka-based regional banks said they were considering merger talks. [ID:nT16436]

Investors picked up shares like electronics parts maker TDK Corp (6762.T: Quote, Profile, Research, Stock Buzz) on the back of gains in U.S. stocks after the Federal Reserve signalled a willingness to keep cutting interest rates. A relatively weaker yen also helped exporters.

Fumiyuki Nakanishi, group manager of investment research department at SMBC Friend Securities, said the market mood was also lifted by finance ministry data showing foreign investors were net buyers of Japanese stocks last week. [ID:nTKW002970].

"The Tokyo market won't go up unless foreign investors buy," he said.

But some market participants said they have not let down their guard as the market remains sensitive to negative news, such as any fresh losses related to U.S. subprime mortgages or credit markets.

"It's like a Japanese saying about winter around this time of year -- three cold days and four warm days," said Katsuhiko Kodama, senior strategist at Toyo Securities. "Cold days and warm days come in turns."