Asian Markets
Nikkei edges up on reflation plays, China PMI dents exporters
Thu, Feb 28 22:11 PM EST

* Nikkei set to end higher this week * China data dents China-sensitive exporters * Real estate stocks and other reflation bets support Topix * Further gains in Nikkei expected towards April - analyst By Ayai Tomisawa TOKYO, March 1 (Reuters) - Japan's Nikkei stock average edged higher on Friday, erasing earlier losses as weakness in exporters was offset by interest in real estate stocks and other bets on asset reflation.

The Nikkei added 0.1 percent to 11,565.72 by the midday break, after dropping as low as 0.8 percent. On Thursday, it rose 2.7 percent, marking the biggest one-day percentage rise in three weeks, partly due to end-of-month window-dressing, traders said.

The broader Topix index, which gives less weight to tech stocks and exporters, outperformed and gained 0.4 percent to 979.88.

New Prime Minister Shinzo Abe's ambition to use the full force of monetary policy to end deflation and spur growth has sharply weakened the yen and sent Tokyo stocks soaring since November, with the Nikkei hitting a 4-1/2 year high on Monday.

"Investors are hoping that Abe's government will tackle asset deflation, so stocks related to the value of land such as real estate, railroad and warehouse shares have been popular recently," said Hajime Nakajima, deputy general manager at Iwai Cosmo Securities.

The warehouse subindex rose for a third straight day, adding 3.7 percent and was the best sectoral performer on the main board. Shibusawa Warehouse Co gained 14 percent and Yasuda Warehouse Co jumped 21 percent.

The real estate subindex gained 3.5 percent with Mitsui Fudosan rising 2.2 percent and Mitsubishi Estate climbing 4.1 percent.

East Japan Railway Co added 2.8 percent, while West Japan Railway Co gained 1.0 percent.

Traders said that selling by short-term players seemed to have run its course in early morning trade, while long-term investors may stay on the sidelines before the weekend. Exporters, which have been the biggest gainers since the yen began declining sharply, succumbed to profit-taking.

Toyota Motor Corp dropped 0.9 percent and Nikon Corp fell 0.8 percent.

Although China's weak economic data had a limited impact to the overall Japanese market, exporters with high exposure to the Chinese market were hit. Komatsu Ltd dropped 1.2 percent, Hitachi Construction Machinery Co fell 1.6 percent and Fanuc Corp shed 0.3 percent.

Data published midmorning showed Chinese factory activity grew at its slowest pace in four months in February as domestic demand softened, upholding expectations that China's modest economic revival requires no change in monetary policy for now.

NIKKEI'S LONG-TERM SENTIMENT STRONG After advancing more than 10 percent this year, the Nikkei faced a correction early this week due to a strong yen triggered by uncertainty over the Italian election, spurring worries about a hung parliament and the possibility it could reignite debt problems in Europe.

But analysts said that the fallout was seen as temporary, and the Nikkei is poised to post weekly gains this week. It is up 1.6 percent this week. Kenichi Hirano, a strategist at Tachibana Securities, said the Nikkei's long-term sentiment is supported by ongoing hopes for monetary easing.

"The Nikkei will likely add gains towards April as investors expect the central bank will announce easing measures at its policy meeting then," Hirano said.

Abe nominated Asian Development Bank President Haruhiko Kuroda, an advocate of aggressive policy action, to head the Bank of Japan, supporting market confidence in the reflation strategy. Academic Kikuo Iwata, who supports unconventional monetary policy, and BOJ official Hiroshi Nakaso, who has hands-on knowledge of the central bank's inner workings, were nominated as BOJ deputy governors. The three men need to be approved by both houses of parliament.

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