TOKYO NuFlare Technology Inc (6256.T) led gains in Japanese makers of chip-making gear on Wednesday after news that Applied Materials would buy Tokyo Electron boosted sector firms with strong market share in niche products.
Shares of NuFlare, which has the top market share in electron-beam mask lithography systems, climbed 5.4 percent to 1.299 million yen, edging closer to their lifetime high of 1.370 million yen hit in July.
Disco (6146.T), which has a high market share in precision cutting equipment to process parts for PCs and mobile phones, gained 2.1 percent to 5,770 yen.
"Only those companies that have a dominant share in niche markets can retain pricing power in a market where there are only three major buyers," said Yasuo Sakuma, portfolio manager Bayview Asset Management.
The deal between Applied Materials Inc (AMAT.O) and Tokyo Electron Ltd (8035.T) will combine the world's No.1 and No.3 makers of chip-making equipment.
Others ceded early gains as they are likely to face tough competition after the merger, analysts said.
Hitachi Kokusai Electric Inc (6756.T) closed down 0.5 percent after gaining 1.9 percent at one point.
Tokyo Electron shares rose 13.2 percent, while the benchmark Nikkei .N225 index fell 0.8 percent on Wednesday.
(Reporting by Tomo Uetake and Hideyuki Sano; Editing by Chris Gallagher)