By Tomo Uetake
TOKYO (Reuters) - Japan's Nikkei average climbed to a fresh 4-1/2 year high on Thursday as financials and exporters gained on the news of the U.S. Federal Reserve's pledge to maintain stimulus and hopes of more monetary easing by the Bank of Japan's new leadership.
The benchmark Nikkei finished 1.3 percent higher at 12,635.69, its highest closing level since early September 2008.
On Wednesday, Haruhiko Kuroda, an advocate of aggressive easing, took the central bank's helm along with deputies Kikuo Iwata and Hiroshi Nakaso.
"The market expects easing at its first meeting (on April 3-4) under the new leadership, so until then, the market should stay strong," said Toshihiko Matsuno, a senior strategist at SMBC Friend Securities.
Market players said sentiment among Japanese retail investors was unusually bullish after they have pocketed huge gains on the recent rally in Japanese shares.
"Everybody seems to be making money ... when sentiment is so strong and they have big risk capacity, negative news will hardly dent the market and only offers good buying opportunities," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
Data from a brokerage specialising in retail investors showed margin traders' positions have unrealised gains for 13 straight trading days. Normally they have unrealised losses as they tend to hesitate to cut losses.
"This market is so different from usual patterns that there's no point making bets, based on various events on calendar or on the news," Sakuma said.
The Nikkei has gained 21.6 percent this year on widely-expected policy easing after Prime Minister Shinzo Abe's campaign to pull the country out of persistent deflation and bolster growth.
The yen has weakened 10.5 percent during the same period, boosting hopes that exporters' overseas earnings will rise when repatriated.
On Thursday, the textiles sector advanced 3.5 percent to become the best sectoral performer on the main board.
Within that sector, Toray Industries Inc <3402.T> soared 6.4 percent after the Nikkei newspaper said the synthetic fibre maker would invest about 56 billion yen by 2020 to broaden its presence in Thailand.
Financials led the gains. The securities sector s the second-best sectoral gainer, adding 3.1 percent, while the other financial sector and the banking sector rose 2.5 percent and 1.5 percent respectively.
Exporters were also in demand. Sony Corp <6758.T> gained 1.8 percent and was the most-traded stock on the board by turnover, while Nissan Motor Co Ltd <7201.T> added 1.9 percent and Hitachi Ltd <6501.T> rose 2.5 percent.
Analysts noted investors were relieved after the Fed said it will retain its $85 billion a month bond-buying programme to support the economy, pushing the dollar to 96.13 yen, within striking distance of a 3-1/2 year high of 96.71 reached last week. The yen last traded at 95.76 yen against the dollar.
CYPRUS STILL A CONCERN
While many analysts are bullish about the Nikkei's outlook, they said the Japanese market is still vulnerable to a rise in the yen.
"Excessive worries about a bailout on Cyprus have receded, but we still need to stay alert on currency moves as we were caught off-guard by the yen's rise the other day (when the controversial Cyprus bailout plan rattled markets)," SMBC Friend's Matsuno said.
Cypriot leaders held crisis talks on Wednesday to avoid a financial meltdown a day after the country's parliament rejected a levy on bank deposits, which had been proposed over the weekend by European Union officials.
The broader Topix gained 1.2 percent to 1,058.10, with 2.88 billion shares changing hands, slightly ahead of Tuesday's 2.84 billion but down from Monday's 3.11 billion.
Amid strength in the Japanese market, Japan equity weighting by global institutional investors was 15 percent overweight for March, up for the third month while investors have confidence in Japan's corporate earnings outlook, according to a survey of fund managers conducted by Bank Of America Merrill Lynch.
But some analysts say that those who pour in money in to the market before the cautiously awaited BOJ's policy meeting on April 3-4 are mostly short-term investors.
(Additional reporting by Ayai Tomisawa; Editing by Eric Meijer)
