Nikkei, TOPIX hit multi-year highs after tankan

TOKYO, Apr 3 (Reuters) The Nikkei rose 1.78 percent to its highest in more than 5-{ years and the TOPIX index hit a 14 year high on Monday as investors bought Sony Corp. and others after a key business sentiment survey showed that Japan's economic recovery is continuing.

The Bank of Japan tankan survey showed that business confidence among Japan's big manufacturers slipped unexpectedly in the three months to March, but they reported an upbeat outlook and robust capital spending plans.

Tatsuyuki Kawasaki, director of the equities trading division at Kaneyama Securities, said the survey reinforced the view that the Japanese economy is recovering, boosting shares.

''Those who had expected a weak reading in tankan are buying back, especially in the futures market,'' he said.

Hopes for the inflow of new funds as the new fiscal year kicked off on Monday also lifted shares.

The Nikkei rose 304.22 points to 17,363.88 as of 0504 GMT, after earlier hitting its highest since July 2000.

The TOPIX was up 1.64 percent at 1,756.52, after earlier hitting its highest since January 1992, topping a level reached during the dot-com boom of 2000.

Hiroyuki Nakai, chief strategist at Tokai Tokyo Securities, said the weaker-than-expected tankan was regarded as a sign the BOJ may wait a little longer before raising interest rates.

''Had the (tankan's headline figure) come in above the forecast ... it would have increased concerns about higher interest rates, the biggest risk factor for the market. But it came in a bit weaker ... so it was just right.'' BONDS SLIP Masayoshi Okamoto, head of dealing at Jujiya Securities, said the stock market also reacted to the declines in bond prices following the tankan. The yield on the 10-year Japanese government bond (JGB) rose to a 20-month high.

Yumi Nishimura, manager of the investment advisory section at Daiwa Securities SMBC Co. Ltd., said the TOPIX may challenge 1,800, although at such a level profit-taking may set in.

''The next focus would be U.S. companies' earnings announcements and if they are disappointing and send U.S. stocks lower, that would trigger profit-taking in Japanese stocks,'' she said.

Technology shares rose as traders said some institutional investors had parked their new money for the fiscal year in blue-chip shares.

Sony gained 2 percent to 5,560 yen while Matsushita Electric Industrial Co. Ltd. rose 1.9 percent to 2,665 yen.

TDK Corp. advanced 2.8 percent to 9,120 yen after business daily Nihon Keizai said on Saturday that the electronics components maker is expected to post 35 percent growth in operating profit and boost its annual dividend by 11 percent in the business year that started on April 1.

Aeon Co. jumped 5.1 percent to 3,000 yen after Asia's biggest retailer by sales said it was considering boosting its stake in shopping centre developer Diamond City Co. through a tender offer.

Other retailers rose on optimism about the economic recovery, with Fast Retailing Co. Ltd., Japan's largest casual wear chain, adding 2.7 percent to 11,820 yen.

REUTERS SS SP1302