February 24, 2017 / 2:34 AM / 6 months ago

Japanese stocks pare losses, heads for modest weekly gains

* Nikkei has added 0.6 pct for the week so far

* Stocks with strong earnings prospects bought - analyst

* Morinaga Milk and Morinaga & Co jump on merger report

By Ayai Tomisawa

TOKYO, Feb 24 (Reuters) - Japanese stocks managed to steady from early falls on Friday as the yen weakened slightly during Asian trade, but political uncertainty abroad and U.S. tax policy kept most investors on the sidelines.

The Nikkei edged down 0.1 percent to 19,347.97 in midmorning trade, crawling back from an intraday low of 19,219.58 hit at the open. For the week, the benchmark index has so far gained 0.6 percent.

The broader Topix, meanwhile, was flat at 1,555.64.

Traders said that investors were selective on a day of few catalysts.

"Investors are cherry-picking stocks of companies which will likely outperform in the next fiscal year," said Norihiro Fujito, a senior investment strategist at Mitsubshi UFJ Morgan Stanley Securities.

"It's not like they are tilted towards defensive stocks or cyclical stocks... Even in cyclical stocks there are divided views and investors are cautious against increasing exposure to the auto sector now."

Electronic components makers and industrial equipment makers with strong earnings prospects outperformed, with Alps Electric up 0.6 percent, Keyence Corp rising 1.1 percent and Advantest Corp adding 0.8 percent.

Auto shares underperformed as investors fret over U.S. President Donald Trump's protectionist stance. Toyota Motor Corp fell 0.6 percent and Mazda Motor Corp shed 0.3 percent.

The transport equipment sector has fallen 2.7 percent so far this year, while the Nikkei has gained 1.3 percent.

On Friday, the dollar rose 0.3 percent to 112.89 yen, compared to a two-week low of 112.55 plumbed overnight.

Concerns over politics on both sides of the Atlantic helped the safe-haven yen overnight, with anti-EU French presidential candidate Marine Le Pen's campaign and Trump's timeline on various policies stoking demand for the yen.

Also hurting the dollar was U.S. Treasury Secretary Steven Mnuchin's comments to Fox Business Network that any policy steps the Trump administration takes would likely have a limited impact this year. He also told CNBC that he wanted to see tax reform passed before Congress' August recess.

Meanwhile, Morinaga & Co surged 6 percent and Morinaga Milk jumped 15 percent after the Nikkei reported that the two companies will integrate their businesses around April 2018.

The JPX-Nikkei Index 400 was flat at 13,948.33.

Editing by Shri Navaratnam

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