TOKYO (Reuters) - Japan's Nikkei share average rebounded on Tuesday from a three-month low as investors reassessed the immediate impact of the French and Greek elections, although they remained wary of further flare up in the crisis-hit euro zone.
"The European risks are so large and difficult to interpret exactly what they are in the wake of the elections in Greece and France," said Stefan Worrall, director of equity cash sales at Credit Suisse in Tokyo.
"In some senses, people are waiting for some direction in one way or another. Overwhelmingly, the mood is cautious."
The Nikkei closed 0.7 percent higher at 9,181.65, holding below the 50 percent retracement of its rally from November to March near 9,195. The broader Topix index gained 0.6 percent to 776.57.
On Monday, the benchmark Nikkei shed 2.8 percent, its biggest one-day percentage drop in six months, on concerns that a new French president and yet-to-be-formed coalition government in Greece could undermine the region's austerity drive.
Major exporters were in demand as investors saw a chance to scoop up some bargains after Monday's hefty loss. Honda Motor Co, Nissan Motor Co, TDK Corp and Fanuc Corp gained between 1.1 and 3.1 percent.
Toshiba Corp rose 2.9 percent after the Nikkei business newspaper said Japan's leading chip maker was likely to forecast operating profit of 300 billion yen for the year ending March 2013, topping market expectations.
After the bell, Toshiba confirmed the 300 billion yen estimate after it posted a 14 percent drop in annual operating profit for the year ended March 31, hit by a strong yen and slower demand due to the euro zone debt crisis.
During the session, Fuji Heavy Industries Ltd announced an 2012/13 operating profit forecast close to market expectations, soothing concerns that it might come in weaker. Shares of Fuji Heavy Industries jumped 7.3 percent.
Japanese companies have performed much better in this earnings season than the previous quarter. Two-thirds of the 68 Nikkei companies that reported January-March earnings before Tuesday beat or met market expectations, data from Thomson Reuters StarMine showed.
Nomura said it expected more upside for Japanese equities in the second half of this year. The Nikkei is down 8.9 percent since April after rallying more than 19 percent in January-March to log its best first-quarter performance in 24 years.
"The fundamental outlook for Japanese equities is by no means bleak. While FY11 results have been as good as expected, many companies appear to have raised their own projections for FY12," it said in a note.
"Provided the yen does not continue to appreciate in FY12, we see a return of equity of about 8 percent as a possibility and think that the growing prospect of that would justify a price-to-book of about 1.1-1.2 times."
The Topix carries a 12-month forward price-to-book ratio of 0.93, more than half of U.S. S&P 500's 1.97, data from Thomson Reuters Datastream showed.
Trading volume on the main board was light, with 1.6 billion shares changing hands, down from Monday's 1.79 billion shares.
Social gaming companies Gree Inc and DeNA Co Ltd extended declines of more than 20 percent in the previous session on a media report that Japan's Consumer Affairs Agency may clamp down on online games that contain aspects of gambling.
Gree ended down 0.1 percent after sagging as much as 16.4 percent to a near 13-month low during the session, while DeNA lost 1.5 percent after plunging as much as 14.6 percent to a 27-month low.
Additional reporting by Sophie Knight; Editing by Nick Macfie