Nikkei tops 17,000 for first time in 5 1/2 years

TOKYO, Mar 30: The Nikkei rose 0.63 per cent to close above 17,000 for the first time in more than 5-1/2 years on Thursday, as bank shares gained on profit prospects and technology stocks rose following a rally in U.S. stocks.

Shares in Isuzu Motors Ltd. rose after General Motors Corp.

said it was discussing selling its stake in the Japanese truck maker, helping the auto sector advance.

Hideo Ueki, chief investment officer at UBS Global Asset Management Japan, said the dollar's strength against the yen was also bolstering the Japanese market.

''We are in a favourable investment environment...especially for exporters,'' he said. ''Japanese companies are revising up their earnings forecasts, and the rises in U.S. interest rates are seen as an indication of a strong U.S. economy.'' The Nikkei rose 106.93 points to 17,045.34, closing above 17,000 for the first time since August 2000.

The TOPIX index gained 0.88 per cent, or 15.14 points, to 1,726.68.

Yoshihisa Okamoto, senior vice president at Fuji Investment Management, said the Nikkei has the potential to reach 18,500 in the new fiscal year starting April.

''Investors expect corporate earnings to expand 8 to 10 per cent in the next fiscal year, and stock prices will likely rise based on that,'' Okamoto said.

Investors shrugged off data showing Japan's industrial production fell for the first time in seven months in February, focusing instead on the overall favourable trend in the economy.

BANKS LEAD Bank shares led the rises after brokerage Goldman Sachs said it had raised its 2005/06 and 2006/07 profit estimates for eight major lenders, thanks partly to strong fee income growth and an improvement in the loan-deposit spread as interest rates start to rise.

Shares of Mitsubishi UFJ Financial Group Inc., the world's largest bank by assets, rose 4.1 per cent to 1.78 million yen, while Mizuho Financial Group Inc. put on 2.4 per cent to 955,000 yen.

Technology stocks rose after the tech-laced Nasdaq hit a five-year high in U.S. trade.

Tokyo Electron Ltd., the world's second-biggest maker of semiconductor-making equipment, rose 1.8 per cent to 8,090 yen.

Electronics conglomerate Hitachi Ltd was up 1.4 per cent at 822 yen.

Kenichi Azuma, equity strategist at Cosmo Securities Co.

Ltd., said the technology sector, which has been underperforming the TOPIX index in the past few years, may draw buyers this year.

''With the economy picking up and interest rates rising, some technology firms are in good enough financial health to benefit from interest income and growing sales,'' he said.

Isuzu Motors climbed 2.4 per cent to 436 yen on news that General Motors was looking to sell its stake. Traders said investors believed Isuzu would be better off after cutting its ties with the struggling U.S. auto maker.

Other auto stocks gained, with Nissan Motor Co. Ltd. up 0.7 per cent at 1,401 yen and Toyota Motor Corp. adding 1.3 per cent to 6,470 yen.

Also gaining was All Nippon Airways Co., which added 3.3 per cent to 434 yen after upgrading its 2005/06 earnings forecasts for the second time this business year.

BEYOND 17,000 Many analysts are bullish about the outlook for the Japanese stock market, although some including Ueki of UBS Global Asset Management are cautious.

Ueki said Japanese stocks look overvalued compared with their global peers as their return on equity (ROE) is less than 10 per cent, compared with nearly 17 per cent for their U.S.

counterparts.

In addition, the Nikkei components are trading at a price-to-earnings (PE) ratio of about 23, compared with 15 for the Dow Jones industrial ''Japanese companies have to boost their profitability, and if they are able to do that, their valuations can be justified,'' Ueki said.

After the market closed, Nikon Corp. said it expects its group operating profit to reach 90 billion yen in the 2008/09 business year, up from an estimated 53 billion yen in the year ending this month, as it expands sales of chip equipment and digital cameras.

Nikon closed down 1.2 per cent at 2,030 yen.

Yahoo Japan Corp. said on Thursday it would ally with Sumitomo Mitsui Financial Group (SMFG), Japan's third-biggest bank, to take a stake in the lender's online subsidiary Japan Net Bank.

Yahoo Japan ended down 0.6 per cent at 70,700 yen.

Tokyo saw its busiest day of trade in nearly three weeks, with 2.22 billion shares changing hands on the exchange's first section. Advancers beat decliners, 901 to 670.

REUTERS