tokyo 08 08, 2012, 13:40 IST
Japan's Nikkei average rose for a third day on Wednesday on fresh hopes of further stimulus from central banks, but pared gains after brushing close to the psychologically key 9,000 level ahead of Friday's options settlement.
Struggling TV maker Sharp Corp <6753.T> limped up 2.7 p ercent after taking a bruising last week, having lost 28 percent on Friday alone after revising its full-year guidance to reflect a massive operating loss.
Early trading was brisk and "risk-on" after a top Fed official appeared to support more U.S. stimulus, which strengthened the dollar and yen against the yen to award a further fillip to Japanese exporters.
The Nikkei closed up 0.9 percent to 8,881.16, managing to break above its 75-day moving average. However, it retreated from its 200-day moving average of 8,955.47 after breaking through it to reach 8,962.95 in the morning. The last time the benchmark index was at the 9,000 level was in early July.
"Some investors were gunning for 9,000 as a strike price for the options SQ after European and U.S. stocks rose overnight, but that momentum petered out," said Takashi Oba, senior strategist at Okasan Securities, referring to Friday's "options special quotation," or the montly settlement of a slew of derivatives.
On a more long-term scale, a dealer said some investors were picking up Nikkei call options with a December expiry at 9,000, betting on the market pushing past this level.
Oba said the broader Topix's less impressive performance -- with a gain of just 0 .3 percent -- was evidence that traders were attempting to push the Nikkei share average up for the monthly event amid wider uncertainty.
Investors continued to punish companies for bad guidance, with chipmaker Dainippon Screen MFG Co Ltd <7735.T> dropping 8.9 percent and Pioneer Corp <6773.T> shedding 7 percent after both firms cut their earnings outlooks on falling demand and a strong yen.
Japanese company earnings have been relatively weak so far this quarterly reporting season, with 53 percent of the 135 Nikkei companies missing market expectations compared to 40 percent last season, data from Thomson Reuters StarMine showed.
Helped by a softer yen, exporters Nissan Motor Co <7201.T>, Honda Motor Co <7267.T> and Fanuc Corp <6954.T>, an industrial robot maker, were in demand, rising between 1.3 and 1.4 percent.
"The bad news seems to be priced in now. People are covering their shorts...(and) going for names that they think are oversold," a trader at a foreign bank said. "People are now looking for quality names with high margins, like Fanuc, which is actually quite strong today."
"Shorts here are very dangerous. People are afraid that they'll get taken out by being too greedy and are covering their shorts. I don't see long buying. The longs I see are more into high dividend names."
Although short-covering propelled Sharp up as much as 8.7 percent during the session, short interest in the troubled company remained high after it reported a first-quarter loss and revised its forecast to a full-year operating loss of 100 billion yen, from a previously estimated 20 billion yen operating profit.
Some 75.59 percent of its stock that is available to be borrowed out on loan as of Aug 6, according to data provider Markit, up from 73.70 percent on Aug 2 when it reported the results after the market close.
Nikon Corp <7731.T>, which is due to report after Wednesday's close, advanced 2.6 percent after the Nikkei business newspaper reported that Intel Corp
Competitor Canon Inc <7751.T> sagged 2.7 percent, however, as investors eyed the end of its share buyback programme, its second in two months. The programme was announced days after Canon cut its full-year operating outlook by 13 percent, blaming the euro zone crisis for hurting sales.
"Japanese equities are undervalued. They are certainly cheap but there is no catalyst for a stronger performance for Japanese shares in terms of the domestic economy," said Andrew Pease, chief investment strategist of Asia Pacific at Russell Investments.
According to Thomson Reuters Datastream, Japan's Topix index carried a 12-month forward price-to-earnings of 10.7 versus a 10-year average of 16.7. The U.S. S&P 500 had a 12-month forward P/E of 12.2.
On Wednesday the Topix inched up to 745.64 as the number of shares changing hands on the board hit a two-month high of 2.1 billion, the most since June 8.
The Nikkei is 1.5 percent down since hitting a two-month high on July 4 on concern over a deepening euro zone debt crisis and sluggish global growth, but is still up 5 percent so far on the year.
"Seeing these gains makes me quite nervous because the market seems quite fickle; the global situation hasn't actually really changed and yet it's rallying," said Yoshihiko Tabei, chief analyst at Kazaka Securities.
In a sign that top policyholder support the U.S. taking more aggressive steps to boost the flagging economy, Boston Fed Bank President Eric Rosengren said on Tuesday that the Fed should launch another bond-buying programme of whatever size and duration needed to get the economy back on its feet.
