Nikkei up, consumer finance firms rise on merger talk

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By Eriko Amaha

TOKYO, July 19 (Reuters) - Japan's Nikkei average rose 0.56 percent on Thursday as expectations of consolidation jacked up consumer finance shares while earnings hopes lifted Chugai Pharmaceutical Co. Ltd. (4519.T) and steel stocks.

But Tokyo Electric Power Co. Inc. (TEPCO) (9501.T) fell more than 5 percent on a newspaper report that its earthquake-hit nuclear plant could be closed for more than a year, helping keep overall gains limited. [ID:nT175197]

Shares of consumer finance companies surged in the last trading hour as a source close to the matter said Japanese consumer lenders Promise Co. (8574.T) and Sanyo Shinpan 8573.T are considering a merger that would create the industry's largest player. [ID:nT158961]

"Merger talk will be a good excuse for investors to buy consumer finance stocks and the market ended on a relatively positive note," said Yosuke Shimizu, head of investment information at Monex Inc.

"But it's uncertain if the market will break out of a range from here on. Investors don't seem to be rushing to buy stocks just yet."

The benchmark Nikkei .N225 rose 100.99 points to 18,116.57. The broader TOPIX index gained 0.53 percent to 1,768.00.

Shozui Kobayashi, assistant fund manager at United Investments Co. Ltd., said U.S. subprime mortgage problems are keeping the market in check.

"Investors are nervous," he said. "I don't think many people think the problem will develop into a risk of slowing the U.S. economy ... but it's a concern."

Trade was active with 2.1 billion shares changing hands. Advancers outnumbered decliners by a ratio of two to one.

MERGER TALK, EARNINGS HOPES

Aiful Corp (8515.T) jumped 11.2 percent to 3,480 yen and Takefuji Corp. (8564.T) climbed 7.7 percent to 4,040 yen on chances of an industry shakeup.

Trade in shares of Promise and Sanyo Shinpan were halted after the report on merger talks. Promise was last traded up 5.9 percent at 3,790 yen while Sanyo Shinpan rose 12.2 percent to 3,600 yen.

The steel subindex .ISTEL.T, which was seen as a laggard compared with the shipping and trading sectors, rose 3.7 percent to become the best performing sector. Strong economic data from China also helped steel stocks to advance.

JFE Holdings Inc. (5411.T) hit a lifetime high for a third straight session before ending up 4.4 percent at 8,270 yen, on growing optimism that its first-quarter earnings to be unveiled on July 30 will be solid. Nippon Steel Corp. (5401.T), the most actively traded issue, jumped 4.7 percent to 919 yen.