Tech sector leads Nikkei rally after Brexit relief

TOKYO, Oct 18 (Reuters) - Japanese shares inched higher on Friday after high-tech companies jumped on upbeat earnings from Taiwan’s TSMC while the overall sentiment was also underpinned after the European Union and Britain struck a severance deal.

The Nikkei share average rose 0.77% to 22,624.60, jumping above Tuesday’s high to hit a 10 1/2-month high while the broader Topix gained 0.39% to 1,630.52.

The Nikkei extended gains after China’s industrial output beat market expectations, somewhat easing worries about manufacturing slowdown in China in the wake of Sino-U.S. trade war, albeit the figures comprised one economic data point only.

Also buoying sentiment was an agreement late on Thursday between Britain and the European Union on the former’s departure from the bloc, in a step toward ending economic uncertainty that has lingered since Britain voted over three years ago to leave.

At home, investor sentiment also benefited from a trade deal reached between Japan and the United States which the Japanese government said would likely boost the domestic economy by about 0.8%.

The tech sector led gains after Taiwan Semiconductor Manufacturing Co (TSMC) on Thursday raised its 2019 capital spending plan by up to $5 billion and forecast a nearly 10% rise in fourth-quarter revenue on strong demand for faster mobile chips and new high-end smartphones.

Screen Holdings, a major chip industry supplier, gained 8.9% in heavy trade while Sumco rose 4.6%.

Murata Manufacturing gained 1.3%, while robot maker Fanuc soared 3.4% and Keyence rose 1.5%.

On top of the Brexit deal, U.S. corporate earnings have so far mostly beat market expectations.

That also raised some hopes that Japanese companies’ earnings outlook could bottom out soon. The Topix’s forward earnings per share (EPS) has declined 9% to 122.86 since peaking in November.

Advancers outnumbered decliners by a ratio of roughly 2 to 1, reflecting improving sentiment on the economic outlook.

Defensive shares, such as food companies, underperformed, as investors moved out of them to more cyclical shares.

NH Foods dropped 2.1%, cosmetic firm Shiseido declined 2.0% and Keisei Electric Railway fell 1.6%. (Reporting by Hideyuki Sano; Editing by Christopher Cushing)