TOKYO |
TOKYO (Reuters) - Japan's Nikkei average climbed 1 percent on Tuesday after hopes for more drastic steps to deal with the euro zone debt crisis and a robust start to the U.S. holiday shopping season boosted global stocks.
But selling from European investors capped gains and many market participants see limited upside in the near term as they seek more evidence from Europe on progress in efforts to stem the debt crisis.
"The rebound so far this week is based on expectations. We don't have the conditions in place that would lead to a sustainable rally," said Ryota Sakagimi, chief strategist at Nikko SMBC Securities.
The benchmark Nikkei .N225 was up 1 percent at 8,372.75 in midmorning trade, moving away from a 2- year low around 8,135 hit last week. The broader Topix index .TOPX gained 0.8 percent to 721.48.
Cyclical shares, such as shippers .ISHIP.T and steelmakers .ISTEL.T, extended strong gains after a massive selloff until last week.
The Japanese market is supported by cheap valuations, with both indexes traded below book value.
Analysts' EPS forecast for the Topix has fallen 23 percent from a peak in May, compared with about 13 percent for Standard and Poor's 500 index .SPX, suggesting the market has already priced in hefty earnings cuts, SMBC's Sakagami also said.
Still, many investors are not ready to buy given huge uncertainty over Europe even as France and Germany stepped up a drive for coercive powers to reject euro zone members' budgets that breach EU rules, seeking tighter integration of the currency bloc.
"Worries about the sovereign debt crisis are still around so the market is unlikely to gain much further," said Hiroaki Kuramochi, general manager at Mita Securities.
Selling from European pension funds may continue until they see a clear solution to the debt crisis on the horizon, market players also said.
KDDI Corp (9433.T) dropped 2.1 percent was the heaviest traded share by turnover on the main board after the company said on Monday it would sell up to 200 billion yen of convertible bonds and use the money to buy back its own shares from Tokyo Electric Power Co (9501.T), the operator of the crippled Fukushima nuclear plant.
Tokyo Electric said it is selling its entire stake in KDDI for 186 billion yen, as it sells off assets under a restructuring plan to raise funds to compensate victims of the Fukushima crisis. Tepco shares rose 0.7 percent.
(Reporting by Hideyuki Sano; Editing by Chris Gallagher)
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