Nikkei rises after gains on Wall Street

TOKYO, May 26 (Reuters) The Nikkei rose 1.77 percent on Friday as investors, relieved by gains Wall Street and rebounds in emerging markets, picked up exporters such as Honda Motor Co. Ltd. and bank shares on earnings hopes.

A recovery in oil prices lifted energy-related stocks including INPEX Holdings Inc., Japan's biggest oil explorer, and Nippon Mining Holdings Inc., an operator of Japan's largest copper smelter and fifth biggest oil refiner.

Hiroichi Nishi, general manager at Nikko Cordial Securities Inc., said Tokyo stocks were lifted by extended gains in the Dow Jones industrial average, the first two-session gains since May 10, as well as rises in India, Russia and other emerging markets.

''There are expectations that we may have passed the worst of it for now,'' he said.

Junichi Misawa, senior fund manager STB Asset Management, agreed.

''The market has fallen to a very attractive level. There is no reason for investors to sell into the market with this valuation,'' he said.

But Misawa said that until the market gets confirmation that earnings outlooks are brighter than what many companies have produced, the market will likely remain in a range.

The Nikkei gained 277.01 points to 15,970.76. For the week it lost 1.14 percent, its third straight week-on-week decline. The broader TOPIX index rose 1.83 percent to 1,613.78.

Exporters gained after a U.S. government report showed first-quarter growth in the world's largest economy was slower than expected. The data did not exacerbate worries about inflation and higher interest rates, helping to send U.S. stocks higher.

Honda was up 1.5 percent at 7,440 yen and Toyota Motor Corp.

added 1.7 percent to 6,110 yen.

Bank shares rang up gains after Goldman Sachs said in a report on Thursday banks' low earnings outlooks were not a cause for concern. The brokerage firm said major banks were forecasting no increase in interest rates for the year and their forecasts were conservative.

Second-ranked Mizuho Financial Group Inc added 2.5 percent to 917,000 yen and its rival Resona Holdings Inc. jumped 7.3 percent to 339,000 yen.

In the insurance sector, Sompo Japan Insurance Inc. rebounded from sharp sell-offs after Japan's second-largest casualty insurer was ordered to suspend operations temporarily for a series of unlawful sales practices. The stock ended up 4.1 percent at 1,447 yen.

Shares of game makers perked up with Nintendo Co. Ltd.

recouping most of its losses from the previous session, up 8.8 percent to 18,980 yen. Merrill Lynch kept its ''buy'' rating on Nintendo and told investors there was no reason to be bearish about the company's profit forecast.

Konami Corp. gained 5.6 percent to 2,650 yen and Tomy Co.

Ltd. jumped 9.5 percent to 845 yen, after the toy maker forecast a return to profit in the current year.

Nishi at Nikko Cordial Securities said hopes for strong game sales were growing as the summer bonus season draws near.

After the market closed, microchip maker Renesas Technology Corp.'s CEO told Reuters the company is expected to post a net profit in the current fiscal year ending in March 2007, turning around from a 2.4 billion yen net loss the previous year.

Renesas is a joint venture between electronics conglomerates Hitachi Ltd and Mitsubishi Electric Corp.

Meanwhile, McDonald's Japan's chief executive Eikoh Harada said in an interview with Rueters that it aims to create the framework of a new food business by October and has begun talks with one or two domestic companies on possible partnerships.

The stock ended down 0.5 percent at 1,899 yen.

Volume fell to its lowest level in more than three weeks, with 1.65 billion shares changing hands on the Tokyo exchange's first section. Advancers beat decliners by a ratio of 4 to 1.

REUTERS CS RK1415