* Nikkei tiptoes away from one-month closing high * Sony up on reports of Panasonic tie-up, Olympus aid * Weaker yen lends support to exporters By Sophie Knight TOKYO, June 22 (Reuters) - Japan's Nikkei average slipped on Friday as investors brooded over flagging manufacturing activity in the United States, Europe and China, but the key share index still sneaked in its best weekly gain in four months. Losses were curbed as a weaker yen led to gains for major exporters, while Sony Corp rose 5.6 percent on reports that it would invest roughly 50 billion yen ($622.86 million) in scandal-hit Olympus and also join hands with Panasonic to make next generation TVs. "There's definitely a focus on large caps today which marks a change from the usual position adjustments on a Friday - if you look at the most traded stocks a lot of them are gainers," said Hiroyuki Fukunaga, chief executive of Investrust.
Among the five top-traded stocks by turnover was Honda Motor Co, which rose 0.8 percent, while Softbank Corp topped the ranking, adding 2 percent to recent gains to hit a fresh nine-month high in anticipation of the upcoming iPhone 5 release. But economically sensitive sectors slumped, with the mining sector shedding 2.4 percent and iron and steel down 1 percent.
The Nikkei fell 0.3 percent to 8,798.35 points after hitting its highest closing level in five weeks on Thursday, but managed to end up 2.7 percent on the week, the biggest weekly gain since mid-February.
"I'd expected a much bigger fall today after the drop in U.S.
stocks but the weaker yen is lending a surprising amount of support to the market," said one trader for a foreign bank.
"However, I think it's linked to the impact of the Operation Twist announcement and don't think it implies a significant trend for the forex market." The Federal Reserve on Wednesday extended its programme to buy long-term securities and sell short-term ones to year-end, beyond its original expiration date in June, dashing some investors' hopes for a bigger stimulus and keeping the dollar firm.
Subsequently, sentiment was hit by weak data. Business activity in the euro zone shrank for a fifth straight month in June while Chinese manufacturing contracted, as Philly Fed's mid-Atlantic facotry index fell unexpectedly to minus 16.6 in June on weakening overseas demand. But some regional Japanese banks were boosted after they were excluded from rating agency Moody's Investors Service downgrade of 15 major global banks to reflect exposure to volatile capital markets. Akita Bank gained 3.3 percent and Towa Bank closed up 1.4 percent. Kansai Electric Power Co pared early losses but still shed 1.9 percent after Kyodo News reported that scheduled blackouts could hit the power-strapped Kansai region twice a day and only once daily in other areas. The electric and gas sector underperformed the market, dropping 0.7 percent. The broader Topix slipped 0.4 percent to 750.92 on Friday. The Topix now carries a 12-month forward price-to-book ratio of 0.83, much cheaper than the U.S. S&P 500's 1.83 and STOXX Europe 600's 1.23, data from Thomson Reuters Datastream showed.
But the Japanese index offered a much lower return on equity of 7.7 percent to S&P 500's 15.4 percent and STOXX Europe 600's 12.9 percent.
TIME FOR AN UPSWING? With the Nikkei holding above 8,707.96, its 23.6 percent retracement of its slide from March 27 to its six-month low on June 4, some analysts were optimistic that the index could be on an upward trend. Michi Hirakawa, a strategist at Daiwa Securities Capital Markets said that both the Nikkei and the Topix have set out on a positive trend, are approaching their five-week moving averages, and that strong performances for precision parts and communication companies are buoying the market. Foreign investors purchased Japanese equities last week for the first time in nine weeks - to the tune of 59 billion yen ($735 million) - while their purchases of "safe-haven" Japanese bonds ebbed slightly. "It just seems like foreigners have nothing left to sell," said the trader. A contributing strategist at Nomura Securities, Yujiro Goto, said in a note that "it is premature to suggest that there are changes in the foreign investment trend, though, because of still elevated concerns over the euro zone debt problem and the weakening U.S. economic outlook."