Nikkei ekes out slim gains on U.S. earnings results, Shanghai's drop weighs

20:59, January 17, 2011      

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Tokyo stocks ended mixed Monday, with the key Nikkei stock index rising 0.04 percent on increased optimism about U.S. earnings figures, but gains were capped by a slide in Chinese equities following growing concern about further monetary tightening.

Brokers said that stocks opened higher on Monday following Wall Street's gains at the end of last week as better-than-expected earnings reports from JPMorgan Chase & Co. sent the Dow Jones Industrial Average to a two-and-a-half-year closing high and raised expectations other U.S. firms will post robust results, particularly in the financial sector.

Citigroup and Goldman Sachs are both scheduled to announce earnings this week and strategists said that whilst some investors opted to lock in gains made instead of chasing higher issues, others took a wait-and-see approach ahead of a slew of earnings information due out forthwith.

"Many investors preferred to take a wait-and-see stance, with the U.S. market closed Monday ahead of slew of earnings reports due later this week," said Fumiyuki Nakanishi, general manager of investment & research at SMBC Friend Securities.

But a drop in Chinese shares in the afternoon sent the market mood dour, particularly when the Shanghai bourse relinquished as much as 2.5 percent at one point Monday.

Strategists said that news on Friday that China will raise the deposit reserve requirement ratio for banks again to fight inflation, fueled concern about further monetary tightening, but the market was still underpinned by expectations Japanese firms will post strong earnings results mirroring those of their U.S. counterparts.

"If there is a big correction in Chinese shares, Japan's stock market may be affected too," said Koichiro Nishio, a market analyst in Tokyo at Nikko Cordial Securities Inc.

"Foreign buying will probably continue further as expectations for Japanese firms to post strong results have been heightened by robust U.S. earnings," added Fumiyuki Takahashi, an equity strategist for Barclays Capital Japan.

The 225-issue Nikkei Stock Average gained 3.82 points from Friday to 10,502.86, while the broader Topix index of all First Section issues on the Tokyo Stock Exchange dropped 1.58 points, or 0.17 percent, to close at 928.73.

China-lined issues retreated monday, with Komatsu losing around 1 percent to 2,513 yen and Hitachi Construction falling 1.3 percent to 2,018 yen. Kubota dropped 0.5 percent to 814 yen and Nippon Yusen, which counts Asia excluding Japan as its largest market by sales, lost 1.1 percent to 374 yen.

The central bank in China raised the banks' reserve requirement ratios unexpectedly on Friday for the fourth time in 70 days, prompting speculation there may be more tightening measures in the first quarter.

China's policymakers hope to drain excessive liquidity from its rapidly rising economy, and curb overall price rises and with inflation expected to stay high in the first half of 2011 and some economists believe more tightening is inevitable.

The move on Friday by the central bank underscores Beijing's shift to "prudent" monetary policy in December, from its previous "moderately loose" policy stance. The 50-basis-point increase, effective on Jan. 20, will raise the reserve requirement ratios for major Chinese banks to a record high of 19.5 percent.

"Sharp falls in Shanghai shares after China's tightening decision were a turnoff, sending Japanese shares lower," said Yutaka Miura, senior technical analyst at Mizuho Securities Co.

"Both U.S. and Japanese stocks could undergo an adjustment phase after a strong rally since around November... and China's decision came at a time when market players had grown cautious about chasing share prices higher," Miura added.

Exporter shares closed mixed, despite the weakening of the yen versus the U.S, dollar and Sony shed 0.1 percent to 2,937 yen and Nikon fell 1.3 percent to 1,823 yen.

Among Japanese automakers, Toyota Motor fell 1.4 percent to 3, 500 yen, following a report in the Yomiuri Shimbun newspaper saying Toyota had stopped operations at all 12 factories in Aichi Prefecture due to heavy snowfall.

Nissan Motor slipped 1.1 percent to 837 yen and Honda Motor skidded down 0.6 percent to 3,325 yen.

Japanese megabanks underperformed on Monday following high expectations after JPMorgan's earnings and top-lender Mitsubishi UFJ Financial Group closed flat at 457 yen and Sumitomo Mitsui Financial Group also closed level at 3,015 yen. Mizuho Financial Group, meanwhile, shed 0.6 percent to close at 168 yen.

Trading volume on Monday dropped to 1.86 billion shares on the Tokyo Exchange's First Section, down from Friday's volume of 2.45 billion shares, with advancing issues outnumbering declining ones by 779 to 702.

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