Nikkei edges up from Thursday's sell-off, Sharp leads the pack

Japan's Nikkei average edged up on Friday, rebounding from a sharp drop in the previous session as investors took comfort from steadiness in US stocks, shrugging off fears over soft manufacturing data from China, Europe and the United States.

Embattled TV maker Sharp Corp gained 5% on short-covering after the Mainichi newspaper said it was in talks with US chipmaker Intel Corp on a capital alliance that would offer a possible lifeline to the firm as discussions with Taiwan's Hon Hai Precision Industry Co Ltd stall.

Gains in Japan Tobacco Inc, up 2.9% after rival Imperial Tobacco rose 2.7% overnight following a reassuring trading update, also supported the market.

The Nikkei advanced 0.3% to 9,110.00 after shedding 1.6% on Thursday in a move that wiped out gains made after the Bank of Japan eased monetary policy on Wednesday.

The benchmark ended 0.5% down on the week, marking its first weekly loss in three weeks.

"We're not seeing big gains from the BOJ's easing because we need to see that the BOJ is really committed to weakening the yen and fighting deflation," said Takashi Oba, senior strategist of Okasan Securities.

"Even though they increased their asset buying by 10 trillion yen, it still looks like peanuts in comparison to the Fed's easing programme."

The broader Topix index gained 0.3% to 756.38 in moderate trade, with volume at 99.2% of its 90-day average. It ended 0.1% down on the week.

"Once investors cover their short positions, the market will shift to fundamentals. But unfortunately, fundamentals are not good at the moment," said Shun Maruyama, chief Japan equity strategist at BNP Paribas.

"With the second quarter results announcements around mid-October to early November, people will start taking short positions ... (and) expecting earnings to be revised down."

For the year, the Nikkei is up 7.7%, trailing a 16.1% rise in the US S&P 500 and a 12.3% gain in the pan-European STOXX Europe 600.

Still, Japanese equities have a similar valuation to European shares, with a 12-month forward price-to-earnings ratio of 11.1, versus STOXX Europe 600's 11 and S&P 500's 12.9, according to Thomson Reuters Datastream.

China plays

Concern about the anti-Japan protests over a territorial dispute in China, as well the sputtering economy, continued to weigh on the market.

Optimism around Japan Airlines Co Ltd's public offering on Wednesday turned sour as the stock lost 4.3%, falling 3% below its initial price, after the company said it would reduce its October flights to China and the Nikkei paper said customers had already cancelled 12,000 flights.

One trader said the stock, which was the most-traded on the main board by turnover, was also being sold off as it had reached its foreign ownership limit of 33%.

Panasonic Corp  said it did not know when it will be able to resume production at its protest-damaged factory in the Chinese port city of Qingdao, and it could not yet give an estimate on how the plant closure will affect its earnings. The stock eased 2.3 per cent.

About 40% of Japanese firms see friction with China affecting their business plans, with some considering pulling out of the country and shifting operations elsewhere, a Reuters poll showed.

Construction machinery makers Komatsu Ltd <6301.T> and Hitachi Construction Machinery Co Ltd , which have significant exposure to China, shed 1.6 and 1.3% respectively.

Steelmakers, whose fortunes are also closely tied to Chinese and global demand, lost 1.5%.

However, in an encouraging sign for the coming week, the Nikkei's 25-day moving average was about to cross above its 200-day moving average, coalescing around the 9,000 level to form a bullish signal known as a "golden cross".