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Nikkei ends flat, retreats from 2-month high as euro euphoria fizzles
July 2, 2012 / 7:26 AM / 5 years ago

Nikkei ends flat, retreats from 2-month high as euro euphoria fizzles

* Investors look to ramifications of euro zone steps
    * Japanese shares show some signs of being overbought in
near-term
    * Expectation of BOJ easing underpins Nikkei

    By Sophie Knight and Hideyuki Sano
    TOKYO, July 2 (Reuters) - Japan's Nikkei average retreated
from an two-month intraday high to end almost flat on Monday
after an early rally, spurred by an agreement to shore up
Europe's troubled banks, faltered on concerns over exactly how
it would stabilise euro zone banks.
    There were signs the market was overbought in the near term,
although risk sentiment remained positive. Growth sensitive
shares such as trading companies, steel and shipmakers were in
favour, while defensive shares such as food companies were given
the cold shoulder.
    The Nikkei ended at 9,003.48, almost unchanged,
after hitting a two-month high of 9,103.79 at one point. The
broader Topix index shed 0.1 percent to 769.34, after
rising as high as 778.87.
    Last Friday, the Nikkei rose above its 200-day moving
average of around 8,950, and the 9,000 mark, for the first time
in 7 weeks, after a surprise decision by euro zone leaders to
allow banks to recapitalize without adding to 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.
    While markets players were unsure how far Spanish and
Italian government bonds will keep falling, Japanese shares were
showing signs of near-term overheating, with the Nikkei trading
above the upper Bollinger Band, which came at 8,683.
    The so-called up-down ratio, the ratio of shares that rose
and those which fell over the last 25 sessions, rose above 120
percent, a level widely seen as warranting a caution of being
overbought.
    Hideyuki Ishiguro, assistant manager of investment strategy
at Okasan Securities, said there should be considerable selling
from Japanese retail investors around 9,100 in the Nikkei.
    "Japanese retail investors have been net buyers for the past
10 weeks, and the average cost of their buying should be around
9,100. So there will likely be some relief selling when the
Nikkei recovers to around that level," he said.
    "The rally has been very fast, so I would rather see
consolidation now than further rally," he added.
    Still, some market players think the Nikkei could recover
further to around 9,243, a 50 percent retracement of the
Nikkei's fall from March 27 to June 4.
    
    SHIPPERS UPBEAT
    The shipping sector boasted a 1.6 percent gain,
the largest of any sector, after underperforming the market last
week with a loss of 1 percent. Nippon Yusen rose 2.4
percent.
    The Bank of Japan's tankan survey showed the business mood
of Japanese manufacturers 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.
    That help lift steelmakers and other construction-related
companies, with Kobe Steel Ltd climbing 2.1 percent and
Tokyo Steel Manufacturing Co Ltd rising 1.1 percent.
    Domestic demand oriented-sectors such as construction have
also been supported recently by expectations of rush in demand
ahead of a likely sales tax hike in April 2014. 
    A bill to double Japan's consumption tax over three years
was passed by the lower house on June 26 and looks set to be
passed by the upper house in coming weeks. 
    "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.
    There are expectations that the Bank of Japan will expand
its easing programme at a policy meeting that concludes on July
12, supporting Japanese shares.
    Many defensive shares underperformed the overall market,
with food companies falling 0.4 percent.

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