Japan stocks rise on U.S. rate cut hopes while yen retreat

TOKYO (Reuters) - Japanese stocks climbed on Friday, buoyed by growing hopes for a U.S. interest rate cut and a slight retreat of the yen that boosted shares in exporters such as Hitachi (6501.T).

Shipping firms and steel companies powered higher to give the overall market a boost, while oil supply concerns helped energy-linked firms rise in line with their peers on Wall Street.

Comments by Federal Reserve Chairman Ben Bernanke reinforced expectations that the U.S. central bank is willing to lower interest rates at a December 11 meeting, as he said a resurgence in financial strains had dimmed the outlook for the U.S. economy.

Market participants said these hopes had definitely buoyed the market, but some expressed doubts about how effective another rate cut would be in the long run, wariness that limited gains. "It's obvious that the impact of the subprime mess is moving out into the wider economy and will not be easy to clean up," said Norihiro Fujito, general manager at the investment research and information division of Mitsubishi UFJ Securities.

"Every time the Fed has cut rates since August, the market has rebounded, but then it has fallen again. Another rate cut seems a bit like taking medicine for a headache, without actually trying to tackle the cause of the illness."

Short positions have piled up in the market so any time potentially good news emerges shares head higher, as has happened several times this week and again, though to a more limited extent, on Friday after Bernanke spoke. "The market has been extremely volatile this week as a result of all these short positions, and this volatility is likely to continue into next month," said Masayoshi Okamoto, head of dealing at Jujiya Securities. "Today is the final trading day for the month, so investors wanted to take the market higher anyway. Bernanke's comments have provided a good excuse."

The benchmark Nikkei .N225 was up 1.2 percent or 184.71 points at 15,698.45 at the midday break. The broader TOPIX was up 1.1 percent at 1,531.20, a gain of 16.73 points.

Tokyo shares roughly tracked other Asian markets. MCSI's measure of other Asia Pacific stocks .MIAPJ0000PUS was up 1.3 percent at 0221 GMT.

STEEL SUPPORT

Steel stocks, including the world's No.2 maker Nippon Steel Corp (5401.T) and third-ranked JFE Holdings Inc (5411.T) jumped after a brokerage upgraded its weighting on the sector to "market weight" from "underweight".

Credit Suisse said the sector's stocks have fallen to a level seen as fair value, after earnings concerns for the second half and the next business year led the sector to underperform TOPIX by more than 20 percent since July.

Nippon Steel jumped by 4.4 percent to 660 yen and JFE Holdings was up by 4.2 percent to 5,980 yen.

Shipping firms steamed ahead as investors bought back the sector on a 1.7 percent recovery in the Baltic dry index .BADI to 10,092 points. The index had fallen steeply since notching up a record high of 11,039 points on November 13.

Japan's shipping sector had been sold down for most of this month in a weak overall stock market despite the November 13 rise in the index.

Among major shippers, Kawasaki Kisen Kaisha Ltd (9107.T) was up 5.8 percent to 1,323 yen and Mitsui OSK Lines (9104.T) rose 5.1 percent to 1,643 yen.

A slight retreat of the yen against the dollar JPY= helped boost exporters such as Hitachi, which was up 1.3 percent to 775 yen, though other exporters such as Canon Inc (7751.T) bucked the trend, sliding 0.5 percent to 5,830 yen.

Volume was moderate, with 1 billion shares changing hands on the Tokyo exchange's first section, compared with last week's morning average of 965 million. Advancing issues outnumbered decliners by a ratio of nearly four to one.

(Reporting by Elaine Lies; Editing by Hugh Lawson)