Nikkei claws higher but profit-taking caps gains

Japan's Nikkei stock average rose 0.3 %on Thursday, clawing to its highest close in two weeks, as buying of defensive shares such as retailers outweighed profit-taking a day after the benchmark made its biggest gain in over two months.

Kubota Corp, a maker of farm equipment, rose 1.8% after Deere & Co, the world's largest farm equipment maker, posted results that beat expectations and raised its outlook for the year ahead. Deere & Co subsequently led the US market higher.  

Hit by the third-lowest trading volume this year, the Nikkei drifted in a tight range as investors turned their eyes to China, reluctant to buy aggressively until Shanghai returns from the Lunar New Year holiday and they can gauge the full impact of last Friday's surprise raising of bank reserve requirements.                                           

The move, which came on the heels of similar action last month and was earlier than expected, rattled world markets last week by raising fears that monetary tightening in the world's third-largest economy would be more aggressive than thought and potentially damage global growth.                                            

Hong Kong share markets shrugged off the news on Wednesday, their first day back after the holiday, and were nearly flat on Thursday, holding near two-week highs.                                           

"We really can't see the impact of the move until Shanghai reopens. Hong Kong isn't really a clear example," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"February markets are often quiet like this. If we can just consolidate around the current levels, that will be enough."        

The benchmark Nikkei gained 28.86 points to 10,335.69 after rising nearly 3 %on Wednesday. The broader Topix closed flat at 904.73.

With a relative strength index (RSI) of 52, the Nikkei is neither overbought nor oversold. Its 75-day and 100-day moving averages are flat and nearly overlapping at 10,150 -- also where the 14-day moving average comes in.                                           

Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities, said some Japanese institutional investors were looking to sell Tokyo shares on rallies.

"There is some buying of banking shares by European investors. But domestic institutional investors are taking a stance of selling shares on rallies," Kuramochi said.                                           

Foreign investors bought a net 107.1 billion yen ($1.2 billion) of Japanese stocks in the week to Feb. 13, ministry of finance data showed on Thursday.

They have only been net sellers in one week out of six since the start of the year, and that was the week to Jan. 30, when the Nikkei fell nearly 4%.                                           

"Foreign investors aren't quite as keen on the Nikkei right now, and without their buying the market tends to drift lower," said Ogawa at Daiwa SB Investments.                                           

"I think part of the problem is politics and the problems with Toyota. It seems as if the quality of Japanese leadership is decreasing."

Doubts persist about Japanese prime minister Yukio Hatoyama''s ability to make tough decisions as his novice government struggles with a host of economic and diplomatic issues, as well as a funding scandal.                                                                  

TOYOTA TROUBLES                                           
US regulators launched a preliminary investigation into reported steering problems on the Corolla sedan on Wednesday as Toyota Motor Corp faced questions from US lawmakers on whether it had ignored red flags on safety before a wave of vehicle recalls.        

The Corolla is Toyota's second-most popular model in the US market, behind the Camry. Such preliminary investigations are a common step by the National Highway Traffic Safety Administration and are often closed before being upgraded to a second-stage investigation or prompting a vehicle recall.  Toyota shares slipped 0.6 %to 3,360 yen.                                           

Sumitomo Corp rose 1.2 %to 985 yen, extending gains made after Indonesia's state electricity firm PT Perusahaan Listrik Negara (PLN) said on Wednesday it had signed a $156.7 million engineering contract with the trading company for a geothermal power plant.                                            

A broad range of defensive shares, which are seen as resilient in the face of uncertainty overseas, were bought. Pharmaceutical firm Chugai Pharmaceutical gained 1.7 % to 1,764 yen and department store operator Isetan Mitsukoshi Holdings rose 2.1% to 943 yen.   

Some 1.7 billion shares changed hands on the Tokyo exchange's first section, the third lightest volume this year. Advancing shares outnumbered declining ones 789 to 735.