TOKYO Japan's Nikkei share average inched higher on Monday, rebounding from the previous session's sharp loss, as risk appetite improved on expectations that the European Central Bank and the U.S. Federal Reserve will soon launch further stimulus.
But weakness in Chinese shares .SSEC capped gains.
The Nikkei .N225 ended 0.2 percent higher at 9,085.39, below its five-day moving average at 9,124.59 and its 26-week moving average at 9,119.58. The benchmark rose as much as 0.9 percent to 9,150.48 earlier in the session.
Some cyclical stocks enjoyed a small bounce, with TDK Corp (6762.T), Nikon Corp (7731.T) and Trend Micro Inc (4704.T) up between 0.3 and 0.9 percent.
"The European debt crisis is gradually easing. I think the ECB is likely to suggest further easing measures next month and the market is expecting this. This will be positive for global equities," said Ryota Sakagami, chief strategist at SMBC Nikko Securities.
"Of course, it will take a long time to resolve the European debt crisis. However, the easing measures will support market sentiment," he said, adding that concerns over Chinese growth would keep valuations of China-related companies low.
In a letter ahead of this week's annual economic symposium at Jackson Hole, Wyoming, Fed Chairman Ben Bernanke said the central bank had room to deliver additional monetary stimulus to boost the U.S. economy.
Sources also told Reuters that the ECB was discussing yield-band targets under a new bond-buying programme to keep its strategy shielded and avoid speculators trying to cash in, as it tackles the euro zone debt crisis.
Banking on a quick fix by the ECB to bring down high borrowing costs for Spain and Italy, the Nikkei has rebounded 9.1 percent since hitting a seven-week low on July 25. The index is up 7.5 percent in 2012.
But some analysts were downbeat on the outlook of Japanese equities as corporate earnings looked weak. "The market looks cheap on current earnings but the problem is the earnings," one said.
Japanese companies' one-month earnings momentum -- analysts' earnings upgrades minus downgrades as a total of estimates -- has deteriorated to -9.1 percent from -4.8 percent last month, according to Thomson Reuters Datastream.
The latest quarterly earnings season had also been disappointed, with 53 percent of the Nikkei companies missing market expectations, according to Thomson Reuters StarMine, up from the previous quarter's 40 percent.
SHARP, OLYMPUS BOUNCE
Sharp Corp (6753.T) advanced 2.6 percent and was the most-traded stock after the Yomiuri newspaper said it and Hon Hai Precision Industry (2317.TW) will agree this month to stick to their original plan for the Taiwanese company to take a 9.9 percent stake in the troubled Japanese TV maker.
Among other gainers on Monday was Olympus Corp (7733.T), which rose 4.4 percent to a 10-month high after it said it would sell its mobile telecom business for $674 million to an investment fund. The cash-strapped medical equipment and camera maker is trying to rebuild from a massive accounting fraud.
The broader Topix .TOPX slipped 0.3 percent to 755.37. Trading volume hit its lowest level this year, with less than 1.1 billion shares changing hands.
Kansai Electric Power Co (9503.T) sagged 5.3 percent after the Nikkei business daily said the power company planned to cancel a dividend payment for the half year ending September amid an uncertain earnings outlook. The company said nothing had been decided on the dividend payment.
Wacom Co Ltd (6727.T), a supplier of Samsung Electronics Co (005930.KS), shed 5.4 percent after Apple Inc's (AAPL.O) sweeping victory over Samsung as a U.S. jury found the Korean company had copied critical features of the hugely popular iPhone and iPad.
($1 = 78.6500 Japanese yen)
(Editing by Richard Borsuk)