Japanese stocks are expected to move higher this week, building on last week's gains, with buyers chasing technology and other exporting companies on expectations new data will show further improvement in the economy.
But some high flying stocks, such as steel makers which have been hoarded by investors anticipating good economic news, may be sold off to limit gains ahead of the "tankan" survey of business sentiment to be released later in the week, analysts said.
"After buying domestic stocks for a while, people are now seeking a chance to step up buying in blue chips and techs," said Koji Muneoka, head of domestic sales trading at HSBC Securities.
"There's also growing consensus that Japanese stocks are the buy. We expect the Nikkei to challenge the 12,000 line as early as next week unless US stocks plunge," Muneoka added, speaking on Friday.
US stocks ended slightly lower as investors locked in gains after a sharp rally the previous session.
The Nasdaq Composite Index fell 0.36 percent to 1,960.02 on Friday, following a 3.02 percent jump a day earlier - its biggest percentage gain in nine months. The Dow Jones industrial average gave up 0.06 percent to end at 10,212.97.
Investors will be paying close attention to the US payroll report for March, due on Friday, as a disappointing outcome could trigger another selling wave on Wall Street, and that might also sap foreigners' appetite for Japanese stocks, analysts said.
In Tokyo, the benchmark Nikkei average ended Friday's session up 2.08 percent at a 22-month high of 11,770.65, bringing the week's total gains to 3.08 percent. Buyers scooped up blue chips and techs, while several domestic business-related stocks also rose on the back of growing optimism over a domestic economic recovery.
Traders said the Nikkei is likely to trade between 11,500 and 12,000 this week.
The market is also seen finding support as banks, pension funds and other domestic financial institutions traditionally reallocate new money from April 1 - the start of a new fiscal year in Japan.
HSBC's Muneoka said stocks such as Rohm Co Ltd, Japan's largest specialist manufacturer of custom-made LSIs, and others that have not reached 2004 heights are likely to attract buyers.
FOCUS ON DATA: With recent data suggesting an improvement in Japan's economy, Masaharu Sakudo, an adviser at Tachibana Securities, said the market's focus will be on the "tankan" survey of corporate sentiment and industrial production data which is due out on April 1.
Unemployment figures are also due on Tuesday with a Reuters poll suggesting the rate probably fell to 4.9 percent in February from 5.0 percent in January.
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