Japan's Nikkei share average ticked up on Thursday, helped by increased confidence in tech shares such as Advantest after Intel cut its profit forecast less than feared, and investors moved from defensives to riskier yet undervalued assets.
However, the benchmark index's failure to hold above its 25-day moving average, a key resistance level it briefly breached in early trade, suggested the market still lacks a catalyst for an authentic recovery.
The Nikkei rose 0.8 percent to 8,795.55, while the broader Topix index's advanced 0.9 percent to 747.13, snapping nine straight days of losses, its longest losing streak in three years.
The electronics and machinery sectors led the gains, but market players said activity was driven by speculators unwinding long real estate and short cyclical stock plays, rather than fresh buying from investors.
"It seems like market players were expecting very negative figures from Intel. Guidance was weak but not shocking, so there is some short-covering now," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"But when all the short-covering is done, the market will likely be capped," he added.
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Intel cut its 2012 revenue growth forecast to between 3 percent and 5 percent, down from a prior forecast of "high single-digit growth," driving Advantest , a maker of chip testers, up 6.5 percent while chip machine maker Tokyo Electron rose 3.6 percent.
A rise in U.S. hi-tech shares after Intel's earnings was good news for Japanese manufacturing stocks, which had been battered by worries about a global slowdown.
"I think concerns about the slowdown in China and other emerging countries accelerating through the second quarter has already been factored in, so I can't imagine earnings season sparking a big sell-off," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
Those concerns have driven investors to domestically- oriented stocks sheltered from international headwinds ever since the Nikkei was toppled from its one-year high of 10,255.15 in March.
Hitachi Ltd <6501.T>, for example, gained 2.4 percent after JPMorgan said the euro zone debt crisis and slowing growth in China would have limited negative impact on revenue, with earnings set to beat company expectations.
However, some safer bets are now looking somewhat overheated. Pharmaceuticals eased 0.2 percent, with Astellas Pharma Inc dropping 1.3 percent as the second-most traded stock after venturing deep into "overbought" territory - its 14-day relative strength index at 76.
Real estate companies , the best performer since the Nikkei bottomed out in early June, fell 0.3 percent as investors unwound long real estate, short cyclical positions.
Few signs of enthusiasm
Although a clear break above the Nikkei's 25-day average could reinvigorate an uptrend from its six-month low of 8,295 hit in early June, market participants are not convinced the market has enough momentum.
"I can't be so bullish about the market. There's no sign of a recovery in trading volume. Trade volume picks up when investors expect a rally but if they think they can buy cheaper in the future, trade volume won't rise," said Kakuya Kojoh, the head of securities at Nissan Century Securities.
Trading volume on both the Nikkei and the Topix was low, at about 20 percent below the 90-day average.
Although low volume is a hallmark of the summer season, with many analysts pointing to the Olympics as a compounding factor, Sakuma of Bayview Asset Management said light trade could allow the Nikkei to rally to the mid-9000s by the end of August.
"I don't think foreign investors are necessary bearish, as even if cash sales indicate they're selling, they may have other positions, and have been unwinding futures in recent weeks," Sakuma said.