Nikkei pares gains as banks weigh, but data supports

By Elaine Lies

TOKYO (Reuters) - Japan's Nikkei stock average rose 0.7 percent on Thursday, buoyed by exporters such as Sony Corp after positive U.S. data strengthened recovery hopes, but with gains capped by a slide in banking shares.

Mitsubishi UFJ Financial Group, Japan's largest bank, lost nearly 3 percent and other banks fell after comments on lending by Shizuka Kamei, the new minister for banking and market regulation who is seen as an opponent of market-friendly reforms.

Kamei said he would like to introduce a moratorium on some loan repayments to help small and midsize businesses and individuals struggling from the economic downturn.

"Basically, the issue is banks -- that's why the Nikkei began paring its gains in the afternoon," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

"Otherwise, the current level is really just about right for the Nikkei at this point. Much higher, and it would start to seem overbought; much lower, and it would be oversold."

The benchmark Nikkei was up 73.88 points at 10,344.65 after rising as much as 1.4 percent in morning trade. The broader Topix edged up 0.1 percent to 932.18.

U.S. industrial output rose for a second consecutive month in August, while a government report showed a bigger-than-expected drop in crude inventories last week, indicating higher demand. Both helped push Wall Street to 2009 highs.

A government survey showing that big manufacturers had turned optimistic in the three months to September as well as a mostly smooth start for Japan's new government were also lending support to market sentiment, market players said.

In addition, a Reuters Tankan survey also showed improvement in manufacturers' sentiment, with an index measuring their mood climbing to a one-year high.

"We have had bits and bobs of positive news and not much in the way of negative news except for maybe Kamei's comment," said Soichiro Monji, chief strategist at Daiwa SB Investments.

The Nikkei's advance came despite comments from new Finance Minister Hirohisa Fujii the previous day, who said that recent currency moves were not rapid and that a strong yen had merits for the economy, pushing the yen to a seven-month high of 90.12 yen on Wednesday though it recovered to just above 91 yen on Thursday.

Investors fret about a stronger yen as it curbs exporters' profits when they are repatriated.

Toyota Motor Corp added 0.8 percent to 3,740 yen, while industrial robot maker Fanuc Ltd gained 2 percent to 7,840 yen and chip-tester maker Advantest Corp jumped 4.2 percent to 2,385 yen.

Sony climbed 1.6 percent to 2,515 yen after Mitsubishi UFJ Securities raised its rating on the electronics maker to "1" from "3" while setting a 3,200 yen target price.

It cited expectations for an earnings rebound in the next business year to March 2011 thanks to a return to profitability in its LCD TV, games and mobile phone operations.

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