Nikkei snaps 3-session of loss, led by housing stocks

Investors expect that real estate shares will benefit from a surge in housing demand ahead of a sales tax increase in 2014

Japan's Nikkei average broke a three-session losing run on Wednesday, as investors snapped up construction and real estate shares on expectations they will benefit from a surge in housing demand ahead of a sales tax increase in 2014.

The construction and real estate sectors were also likely to be more insulated from further fallout from the euro zone sovereign debt crisis, market participants said.

Overall gains were capped by a companies including Canon Inc, Honda Motor Co Ltd and Bridgestone Corp trading ex-dividend, meaning buyers of the stock from Wednesday onwards will not be entitled to receive dividends.

The Nikkei closed 0.8% higher at 8,730.49, breaching above 8,714.78, the 23.6% retracement of its fall from March 27 to June 4, but below its five-day moving average at 8,750.30.

The construction sector was the best sectoral performer, up 2.9% followed by the real estate subindex, rising 2.8%.

"There are many uncertain conditions outside Japan. The market is focused on the EU summit on Thursday and Friday. Therefore, investors' attention is on internal consumption sectors," said Takashi Hiroki, chief strategist at Monex Inc.

Nomura said housing and real estate companies were likely to profit from a surge in housing demand before the sales tax increase, which was passed in the parliament's lower house on Tuesday.

"We expect to see housing starts gradually increase after the consumption tax hike bill is passed and peak in fall 2013," Nomura said in a report.

"Within the sector, we think the stocks most likely to attract attention are makers of built-to-order prefabricated housing, which do not have much inventory risk, and companies selling existing condominiums," it said.

Sekisui House Ltd, Daito Trust Construction Co Ltd , Misawa Homes Co Ltd , Tokyu Livable Inc and Sumitomo Real Estate Sales Co  were up between 2.5 and 6.8%.

Eyes on EU meeting

The broader Topix advanced 0.9% to 745.48. Trading volume on the index was relatively light, at 82% of its daily average for the past 90 days.

The benchmark Nikkei has risen 6% since hitting a six-month low on June 4, but is still down 13.4% in the quarter, on track for its worst quarterly performance in two years on concern over the deepening euro zone debt crisis and slowing global growth.

Investors were cautious ahead of the two-day EU summit to discuss strategies to tackle the worsening debt crisis across the common currency bloc, although few expected significant decisions to be made.

"Investors are hoping that euro zone leaders will discuss a banking and fiscal union later this week, and will be disappointed if they don't come out with something concrete," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.

Hope that the creation of joint euro bonds might be on the table was extinguished on Tuesday after German Chancellor Angela Merkel said she would never allow Europe to share joint debt liability.