Nikkei average climbs

The Nikkei average rose 2 percent on Tuesday, encouraged by manufacturers' predictions of stronger output in the coming months and by a weaker yen after the euro climbed and Moody's put Japan's credit ratings on review for possible downgrade. Also helped by a climb in solar-energy shares on news that Germany will shut all its nuclear reactors by 2022, the Nikkei pushed above resistance near 9,660, its 25-day moving average.
Traders said buying was led by moves in the futures market. "The move is probably being led by CTAs," said Tsutomu Yamada, market analyst at kabu.com Securities, referring to commodity trading advisors, which are known to favour trend-following investment strategies.
"It looks like they are unwinding long positions in Japanese government bond futures and short positions in stock futures," Yamada said. Japan's industrial output rose 1.0 percent for April, below analysts' median forecast of 2.8 percent but manufacturers also sharply increased their forecasts for May, predicting output will rise 8.0 percent compared with their previous 2.7 percent forecast.
Companies expect the post-quake recovery to continue in June with production seen rising 7.7 percent, in a sign they are making headway in restoring supply chains and bringing back production lines idled by the March 11 earthquake, tsunami and power blackouts. "Investors got past the weak data in April and cheered the strong outlook by buying futures," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities. The benchmark Nikkei share average rose 1.99 percent to 9,693.73, posting its biggest one-day percentage gain in two months, while the broader Topix gained 1.80 percent to 838.48.
The yen's drop against the euro and the dollar also lent the Nikkei support. The euro climbed on a report saying Germany could make concessions on efforts to put together a bailout for Greece, while the yen came under pressure after credit rating agency Moody's Investors Service put Japan's Aa2 sovereign rating on review for a possible downgrade.
The benchmark index has mostly traded in a range of roughly 9,400 to 9,800 over the past couple of months. Worries about a slowdown in the US economy and European debt problems have prevented sharp gains, while attractive valuations have lent support.
Whether the Nikkei can break convincingly above its recent trading range will hinge on US economic data due later this week, said Mitsushige Akino, chief fund manager for Ichiyoshi Investment Management. "If the indicators suggest the (US) economy is not losing that much steam or show an improvement, and spur a rise in US shares, Tokyo shares could climb on the back of that," Akino said.
Euro-sensitive stocks outperformed with Mazda Motor rising 1.5 percent to 205 yen and Canon Inc gaining 2.1 percent to 3,905 yen. Among solar-energy stocks, panel-maker Sharp Corp rose 2.7 percent to 760 yen while panel equipment manufacturer Ulvac surged 2.1 percent to 2,057 yen.
"Most of these stocks are relatively small by market cap, so they may not impact the index significantly, but if such buying by domestic investors draws foreign buying there may be further rises in the index," Mizuho's Segawa said. Tokyo Electric Power Co dropped 2.8 percent to 317 yen after ratings agency Standard and Poor's cut its credit rating to junk status on Monday, saying the utility's lenders were more likely to be forced to write off debt as part of a plan to compensate victims of the Fukushima crisis.