TOKYO, Oct 18 Japanese stocks may recover to above the 17,000 level on Thursday, buoyed b

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TOKYO, Oct 18 (Reuters) Japanese stocks may recover to above the 17,000 level on Thursday, buoyed by high-tech shares after expectations of good technology results pushed the Nasdaq higher, but a lack of strong buying incentives will limit gains.

Sony Corp and Toshiba Corp could be in focus after the Nikkei business daily reported that Sony has agreed to sell the production lines for its high-performance Cell microprocessors to Toshiba and will announce the move on Thursday.

A sense that Tokyo stocks were oversold on Wednesday, when both the Nikkei and the broader TOPIX index tumbled more than 2 percent to their lowest levels in several weeks, is likely to spark buying.

''It appears that, technically, both have been sold too much, so this will prompt buying on dips by investors,'' said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.

''Given that foreign exchange rates appear to have settled down a bit as well, it is a good day to buy.'' But lingering caution over global credit and the U.S. economy is likely to keep foreign investors in a wait-and-see mode, particularly ahead of a raft of Japanese company results due out next week.

Investors may also keep a wary eye on other Asian stock markets, some of which fell sharply on Wednesday, and Nishi said a negative mood could spill over to Tokyo should they fall again on Thursday.

''On the other hand, Tokyo could gain a bit because it looks good by comparison,'' he said. ''It never rose quite as far, so there isn't as much fear of falling.'' High-tech shares are likely to fare well, unlike banks, whose battering is expected to continue.

Enthusiasm on the outlook for U.S. technology profits lifted the Nasdaq index on Wednesday after strong results for bellwethers Intel Corp and Yahoo Inc, but broader market sentiment was dampened after the Federal Reserve sounded a note of caution on the economy.

The Fed's Beige Book of anecdotal reports on regional economic conditions showed the pace of economic expansion has slowed since August, and housing markets have continued to weaken. High oil prices, though lower than in previous sessions, continued to weigh.

The Nikkei was expected to range between 17,000 and 17,150 on Thursday. It tumbled to a two-week low on Wednesday, beaten lower by selling of financial stocks, to close at 16,955.31, a loss of 1.1 percent.

Nikkei futures traded in Chicago closed at 17,035, only 5 points lower than the Osaka Wednesday close of 17,040.

The Dow Jones industrial average ended down 20.40 points, or 0.2 percent, at 13,892.54. But the Standard&Poor's 500 Index was up 2.71 points, or 0.2 percent, at 1,541.24. And the Nasdaq Composite Index was up 28.76 points, or 1 percent, at 2,792.67.

STOCKS TO WATCH -- Matsumotokiyoshi Holdings Co T> The drug store chain operator said on Wednesday it would buy back up to 5 billion yen worth or up to 4.67 percent of its own shares between Oct. 18 and March 31.

-- Sony, Toshiba Sony Corp and Toshiba Corp may be in focus after the Nikkei business daily reported that Sony has agreed to sell the production lines for its high-performance Cell microprocessors to Toshiba and will announce this on Thursday.

-- Sanyo Electric Co Ltd T> Sanyo has given up on the sale of its microchip unit after private equity firm Advantage Partners LLP failed to gather enough funds to support its bid of about $1.1 billion, financial sources said on Wednesday.

Its shares sank 6.1 percent following the news.

REUTERS CS BST0525

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