July 2, 2012 / 3:18 AM / 5 years ago

Nikkei pares gains, investors await details of EU move

* Momentum from EU decision continues to buoy stocks
    * Cyclical shares such as shippers in favour
    * Analysts expected bigger gains

    By Sophie Knight
    TOKYO, July 2 (Reuters) - Japan's Nikkei share average went
into the midday break slightly higher on Monday after an early
rally spurred by an agreement to stabilize euro zone banks
sputtered out as investors waited for more details.
    Despite slim gains, risk sentiment was up, with trading
companies, steel and shipmakers in favour, while defensive
shares such as pharmaceuticals were given the cold shoulder. 
    The Nikkei rose 0.2 percent to 9,020.93, but disappointed
some who had hoped for larger gains in response to a surprise
decision by euro zone leaders to allow banks to be recapitalized
without adding to a country's government debt.
    "All these things happened on the last day of a quarter and
it remains to be seen if the euphoric reaction to the outcome of
the summit can actually be sustained until details of agreement
are put under closer scrutiny," said Stefan Worrall, director of
equity cash sales at Credit Suisse Securities. 
    The Nikkei advanced 1.5 percent on Friday to above 9,000 for
the first time in 7 weeks, but closed off the second quarter
with a loss of 10.7 percent, its worst quarterly performance
since last year's July-September period.
    Japanese manufacturers' business mood improved in the
April-June quarter for the first time in three quarters, as
reconstruction in the area worst affected by last year's tsunami
makes progress, the central bank's tankan survey showed.
    That lifted steelmakers and other construction-related
companies, with Kobe Steel Ltd climbing 1.1 percent and
Tokyo Steel Manufacturing Co Ltd rising 2.4 percent.
    Cyclical stocks outperformed, with trading companies
Marubeni Corp, Itochu Corp and Mitsui Co Ltd
 rising between 1.4 and 2.1 percent. 
    The shipping sector boasted a 2.6 gain, the
largest of any sector, after underperforming the market last
week with a loss of 1 percent. Nippon Yusen KK rose 3.4
percent.
    "I expected bigger gains considering the positive surprise
of the EU decision -- the Nikkei has the momentum to at least
recover half of its slide from its March high to its June low,"
said Masayuki Otani, chief market analyst at Securities Japan. 
    A 50 percent retracement of the Nikkei's fall from March 27
to June 4 would take it to 9,243. 
    The broader Topix was up 0.1 percent at 770.71 by
the midday break, with volume at 41.5 percent of its full day
90-day average.    
    Now that European leaders have signaled a concrete policy
shift to tackle the euro zone debt crisis, investors are
expecting the European Central Bank to cut its refinancing rate
by 25 basis points at its meeting on Thursday. 
    There are also expectations that the Bank of Japan will
expand its easing programme at a policy meeting that concludes
on July 12. 
    "The consumption tax legislation appears a green light for
the BOJ to ease without fearing that they are monetizing an
unsustainable debt burden," wrote Naomi Fink, Japan equity
strategist at Jefferies, in a note.
    A bill to double Japan's consumption tax over three years
was passed by the lower house on June 26.

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