TOKYO Japan's Nikkei share average rose to a one-week high on Monday, powered by growing expectations that the U.S. Federal Reserve and the European Central Bank may implement further stimulus measures.
Strong quarterly earnings from Fujifilm Holdings Corp (4901.T) and Konica Minolta Holdings Inc (4902.T) also supported the index, which has fallen 5.7 percent from a two-month high hit in early July on concerns over a deepening euro zone crisis and slowing global growth.
The Nikkei .N225 gained 0.6 percent to 8,619.78, but held below 8,687.93, the 50 percent retracement of its rally from June 4 to July 4.
"I don't see much volume coming through. I would have expected more conviction," a trader at a foreign bank said.
"I see people buying into banks, buying into machinery. That is good, especially machinery as they are going into cyclical, and selling telecoms and utilities ... Volume is not coming through. It is a bit disturbing," he said.
Expectations that the ECB and the Fed, both are to hold policy meetings this week, may launch further stimulus measures helped lift U.S. and European equities on Friday, with the S&P 500 .INX hitting its highest close since May 3 as U.S. economic growth slowed in the second quarter.
Trading volume on the broader Topix .TOPX index was light, at 39 percent of its full daily average for the past 90 days.
The Topix added 0.5 percent to 729.74.
"The Japanese market has priced in too much negative news on the European debt crisis and the global economy. In that sense the Japanese market has the potential to rebound," said Ryota Sakagami, chief strategist at SMBC Nikko Securities.
Sakagami said it was still uncertain whether the ECB would take more steps to bring down the skyrocketing borrowing costs on Spain and whether the Fed would launch another round of bond buying program.
"I am not so bearish of the market conditions. However, it is too early to say that the market will turn to more 'risk on' yet," he said, adding that he expected the Nikkei to rebound to 9,000 at the end of August.
So far this quarterly results season, although it is still in early stage, has been weak despite lower market expectations.
Of the 28 Nikkei companies that have reported quarterly earnings, 54 percent failed to meet analysts' forecasts, data from Thomson Reuters StarMine showed. That compared with 60 percent that beat or met expectations in the previous quarter.
Fujifilm advanced 5.2 percent after surging as much as 6.5 percent to a two-week high, and Konica Minolta climbed 5.6 percent.
Heavy machinery maker IHI Corp's (7013.T) first quarter results also came in ahead of expectations. The stock was up 0.6 percent, in line with the broader market.
Investors were also ready to punish those companies which failed to meet market expectations, however. Fujitsu (6702.T) sank 11.9 percent, and was on track for its worst one-day fall in nearly four years.
Komatsu Ltd (6301.T) shed 2.9 percent after the Nikkei business newspaper said the construction machinery maker was expected to post a 20 percent fall in operating profit for the quarter ended June to 56 billion yen ($712.20 million), compared with StarMine's SmartEstimate of 66.7 billion yen.
($1 = 78.6300 Japanese yen)
(Editing by Eric Meijer)