June 21, 2010 / 6:41 AM / 7 years ago

Nikkei hits 1-month closing high as yuan rises

* Nikkei at highest close since mid-May on China yuan move

* Breaks retracement and resistance, next level 10,300

* Volume on thin side, rises mostly short-covering - analyst

* China move boosts construction machinery, trading houses

By Elaine Lies

TOKYO, June 21 (Reuters) - Japan’s Nikkei average powered to a one-month closing high on Monday, breaking both a chart retracement and key resistance level on a sense that the rise in China’s yuan was a vote of confidence in the global economic recovery’s staying power.

China's Saturday announcement that it would make the yuan more flexible suggested it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism. Its central bank on Monday kept the yuan's mid-point CNY=SAEC unchanged from Friday but the spot exchange rate strengthened to a 21-month high. [ID:nSGE65J03L]

Buying was active and broad-based, with shares in Komatsu Ltd (6301.T) and rival Hitachi Construction Machinery Co (6305.T) jumping, while trading houses gained on higher metals prices and exporters rose on hopes the move will increase Chinese buying power.

The Nikkei .N225 climbed above a 38.2 percent retracement around 10,155 of the fall from its April high of 11,408.17 to its June low of 9,378.23 and also broke above resistance at 10,200, a bit below the level of its 50-week moving average.

“First, the sharply stronger yen that some investors feared would result from this hasn’t materialised,” said Takashi Ushio, head of the investment strategy division at Marusan Securities.

“But even more than this, the move suggests sustainable economic growth for China, which is boosting shares pretty much across the board.”

The benchmark Nikkei .N225 rose 2.4 percent or 242.99 points to 10,238.01, extending rises that last week saw it post a 3 percent gain on the week -- its biggest weekly gain in three months -- and marking its highest close since May 18.

The broader Topix .TOPX rose 2 percent to 902.49.

The Nikkei now faces resistance around its 200-day moving average near 10,300 and then a 50 percent retracement just under 10,400 of its April-June move.

“China’s move has a number of pluses for Japan. It boosts confidence in sustainable growth, which then suggests greater buying power for Chinese people and benefits for Japanese manufacturers,” said Toshiyuki Kanayama, an analyst at Monex Inc.

But others thought the rebound was fragile, noting that volume was relatively thin and that Monday’s gains had been made up mostly of short-covering.

    “There’s definitely rising expectations for sustainable Chinese economic growth, but the market could still be vulnerable to any bad news,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities, citing the potential for further problems with the euro zone’s debt woes and political uncertainty ahead of a July 11 election.

    MACHINERY, TRADERS, EXPORTERS

    Construction machinery makers Hitachi Construction and Komatsu both climbed as they would benefit from a stronger yuan as they assemble and sell their products in China after importing major parts from Japan.

    Hitachi Construction, which has more exposure to China, surged 6.7 percent to 1,873 yen, while Komatsu climbed 4.6 percent to 1,782 yen.

    Trading houses powered higher on surging base metals prices, with Shanghai copper jumping by its 5 percent limit and other metals also rising sharply. [ID:nnSGE65K06J]

    Mitsubishi Corp (8058.T) climbed 6.6 percent to 2,033 yen and Mitsui & Co (8031.T) gained 5.9 percent to 1,210 yen.

    Honda Motor Co (7267.T) climbed 3.7 percent to 2,790 yen, chip tester maker Advantest (6857.T) gained 5.1 percent to 2,099 yen and Canon Inc (7751.T) rose 2.8 percent to 3,885 yen.

    Shares of Teijin Ltd (3401.T) jumped 4.8 percent to 282 yen after the Nikkei newspaper said it had developed a new carbon fibre material for automobiles that can be quickly shaped and processed, and could be used in the curved section of a car’s body.

    Volume was on the thin side with 1.8 billion shares traded, while advancing shares outnumbered declining ones by more than 10 to 1.

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