* Japan gains smaller than Wall Street due to strong yen - analyst
* Advantest, TDK high after earnings
* Screen Holdings tanks after cutting profit outlook sharply
* Dainippon Sumitomo Pharma, SanBio extends their losses
By Ayai Tomisawa
TOKYO, Jan 31 (Reuters) - Japan’s Nikkei rebounded to 1-1/2-week highs on Thursday as the U.S. Federal Reserve’s pledge to be patient over lifting interest rates further helped ease worries about the slowing global economy.
The Nikkei share average had gained 0.8 percent to 20,727.47 points by midmorning, after reaching 20,869.42 earlier, its highest level since Jan. 21.
The Federal Reserve on Wednesday signalled its three-year-drive to tighten monetary policy may be at an end amid a suddenly cloudy outlook for the U.S. economy due to global risks and impasses over trade and government budget negotiations.
As it held interest rates steady, the U.S. central bank also discarded its promises of “further gradual increases” in interest rates, and said it would be “patient” before making any further moves.
Analysts said Japanese investors welcomed the Fed’s more cautious stance, but noted it would tend to weaken the dollar and boost the yen, posing a risk to export-oriented stocks.
“The market rallied today but the gain is not as big as that of Wall Street because investors are worried that a weaker dollar to the yen is going to cut back on Japanese exporters’ profits,” said Takuya Takahashi, a strategist at Daiwa Securities.
The dollar dropped 0.2 percent to 109.88 yen.
The broader Topix rose 0.9 percent to 1,564.27, with 31 of its 33 subsectors gaining.
Advantest Corp soared 5.6 percent, after it hiked its annual operating profit outlook. TDK Corp also surged 6.5 percent as its annual operating profit outlook cut to 110 billion yen was in line with market expectations.
However, Screen Holdings dived 11 percent and was the fifth biggest percentage loser on the board after the company cut its net profit outlook sharply to 17 billion yen from 30.5 billion yen for the year ending March. It also slashed its dividend payout forecast to 91 yen per share from 155 yen per share.
“The market environment is worsening, but Screen’s internal factors are responsible for the sharp downward revision,” said Masahiro Nakanomyo, equity analyst at Jefferies Japan.
He said margins are being hurt by costs related to specification changes by some customers and profitability erosion due to an aggressive sales strategy.
Dainippon Sumitomo Pharma, which dived 19 percent on Wednesday, extended its loss and plunged 14 percent as disappointment from its unsuccessful joint drug clinical trial with SanBio Co dragged on. The stock was the biggest percentage loser on the board.
SanBio, listed on Tokyo’s start-up Mothers market, remained untraded with a glut of sell orders after tumbling 26 percent on Wednesday.
Editing by Kim Coghill