Nikkei edges back towards 10-month high on Fed relief

By Elaine Lies

TOKYO (Reuters) - Japan's Nikkei average edged back toward a 10-month high on Thursday on relief after the Federal Reserve suggested the U.S. economy is through the worst of the recession, with economy-sensitive exporters such as Advantest Corp (6857.T) leading it higher. In thin trade investors sought out individual shares related to specific themes, with Kawasaki Heavy (7012.T) and other companies involved in making trains surging on a report that Vietnam will use Japan's bullet train technology in building its high-speed railway system.

Denso Corp (6902.T), the world's biggest listed auto parts maker, rose 3.4 percent after Mitsubishi UFJ Securities raised its rating on the stock to "1" from "3" and set a target price of 3,680 yen.

Analysts said the market welcomed the absence of surprises on the Fed's closely watched exit strategy, in which it will continue to stick to its current measures, but investors remain wary.

"The Fed's view on the economy has become markedly stronger and the results satisfied both the bond and the stock markets," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"But even though there are improvements in aspects of the U.S. economy and share markets are getting stronger, they're still a lot lower than they were a year ago and people are worrying about overvaluation."

The Fed said the economy was leveling out and left interest rates unchanged at the end of its two-day policy meeting on Wednesday.

It also said it would extend by one month until October the duration of a program to buy long-term government securities but would not increase the amount of purchases.

"This is a market that definitely wants to go higher, but we won't see a real recovery until we have strong improvement in the real economy," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.

The benchmark Nikkei .N225 rose 0.8 percent or 82.19 points to 10,517.19, edging back toward a 10-month high of 10,587.36 hit on Tuesday, with gains in Hong Kong shares .HSI providing an additional boost in afternoon trade.

The broader Topix rose 0.9 percent to 968.41.

EYES ON GDP, ELECTION

With the long-awaited Fed meeting and a slew of Chinese indicators out of the way, analysts said eyes are now on Monday's announcement of second quarter Japanese gross domestic product data and Japan's August 30 general election.

Surveys have shown Japan's opposition Democratic Party has a good chance of ousting Prime Minister Taro Aso's Liberal Democratic Party, ending half a century of almost unbroken rule by the business-friendly party.

"While certain sectors are likely to rise before the election on expectations, the market as a whole is wary about economic policies since there are questions about how both major parties will fund their proposed programs," said Yumi Nishimura, deputy general manager at the investment advisory section of Daiwa Securities SMBC. Kawasaki Heavy, which makes railway rolling stock, shot up 6.9 percent to 263 yen, while another rolling stock maker, Nippon Sharyo Ltd (7102.T), jumped 8.9 percent to 652 yen. Kinki Sharyo Co (7122.T) climbed 8.7 percent to 913 yen.

"This is not just about Vietnam. If Japan manages to export its Shinkansen technology to Vietnam, that would help it export it to others including bigger countries like Brazil and the United States," said Masayoshi Okamoto, head of dealing at Jujiya Securities.