Nikkei at 2-mth closing high, logs 7-day winning run

* Nikkei up 1.7 pct to hit 2-mth closing high

* Nikkei logs 7-day winning run, first time in nearly 3 years

* Hopes for U.S. economy package, soft yen boost buying (Adds stocks, details)

TOKYO, Jan 7 (Reuters) - The Nikkei average rose 1.7 percent on Wednesday to hit a two-month closing high as exporters such as Honda Motor 7267.T surged on a softer yen and amid hopes for a U.S. stimulus package to boost the economy.

The benchmark logged its first seven-day winning streak in nearly three years, gaining 8.5 percent during the period, including two half-days of trading before and after the New Year holiday.

A newspaper report that Japan’s government will seek to scrap capital gains taxes for foreigners investing in Japanese companies through funds also helped improve sentiment, market players said. [ID:nT4537]

They also said risk appetite was growing.

“The extent of the improvement in risk tolerance is clearly reflected in the sharp gains in the prices of oil and other commodities over the past few days. It’s not just the stock market,” said Tsuyoshi Segawa, an equity strategist at Shinko Securities.

“The Tokyo exchange’s first section has recovered about 20 trillion yen in market capitalisation in the past seven days, and that will lift risk tolerance further.”

In active trade, the Nikkei .N225 climbed 158.40 points to 9,239.24, its highest finish since Nov. 5. It booked its first seven-day winning run since March 24-April 3 in 2006.

The broader Topix .TOPX rose 1.4 percent to 888.25.

Although the market welcomed the news about tax breaks for foreign investors, some said the market impact could be limited.

“Considering that about 28 percent of Japanese shares are owned by foreigners, I don’t think there’ll be a bigger flow of foreign funds coming into the market on this move,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co Ltd.

The dollar on Tuesday hit its highest against the yen since Dec. 1, partly on expectations that a stimulus package planned by U.S. President-elect Barack Obama will help the world’s largest economy emerge from recession sooner than other industrialised nations. [FRX/]

Investors welcome a softer yen as it boosts exporters’ overseas profits when repatriated.

Shares of Japanese regional banks including Bank of Yokohama 8332.T gained after the Mainichi newspaper said the government is looking at a plan to inject public funds into 40 or more regional banks, whose capital bases are being hurt by rising bad loans amid the financial crisis. [ID:nT323819]


Investors scooped up beaten-down sectors such as automakers, one of the poorest performers last year, amid improving risk appetite after a panic-ridden 2008, in which the benchmark Nikkei booked its worst year ever with a 42 percent tumble.

Shares of Honda soared 11 percent to 2,210 yen, while Toyota Motor Co 7203.T jumped 4.9 percent to 3,200 yen and Nissan Motor Co 7201.T shot up 9.7 percent to 374 yen.

Tech shares climbed after their U.S. peers rose as investors bet the sector would benefit from Obama’s proposed package of spending and tax-cut measures that would total nearly $775 billion over the next two years.

The Philadelphia Semiconductor Index .SOXX rose 5.1 percent on Tuesday.

Canon Inc 7751.T surged 11.5 percent to 3,310 yen and Sony Corp 6758.T jumped 8.7 percent to 2,305 yen.

Bank of Yokohama, Japan's largest local lender, gained 3.3 percent to 530 yen. Midsize lender Aozora Bank 8304.T, which does business with many regional banks, rose 2.5 percent to 83 yen. Tokyo Tomin Bank 8339.T gained 8.3 percent to 1,496 yen.

Among other notable stocks, Sharp Corp 6753.T jumped 12.6 percent to 897 yen, after it said it would bring forward the start of a new domestic solar cell plant to the end of this year to meet growing demand worldwide for green energy to counter global warming.

Ricoh Co Ltd 7752.T advanced 7 percent to 1,297 yen after Credit Suisse upgraded the stock to "outperform" from "neutral" and raised its target share price to 1,400 yen, saying firmness in the North American market could counter earnings concerns about its subsidiary Ikon.

After the close, Japan's second-largest retailer Aeon Co Ltd 8267.T slashed its earnings outlook and said it may post its first annual net loss in seven years, hit by flagging sales, a writedown at U.S. unit Talbots TLB.N and accounting changes. [ID:nT366933]

The stock closed up 0.5 percent at 874 yen.

Trade was active on the Tokyo exchange’s first section, with 2.8 billion shares changing hands, compared with 2.2 billion shares on Tuesday.

Advancing stocks outnumbered declining ones, 995 to 620. (Reporting by Aiko Hayashi; Additional reporting by the Tokyo news room; Editing by Edwina Gibbs)