Nikkei logs best close since early Sept on tankan

TOKYO, Oct 2 (Reuters) The Nikkei average rose 0.79 percent on Monday to end at its highest close in nearly a month, as Canon Inc.

and others with strong profit prospects rose after a Bank of Japan survey showed improved business sentiment.

A weaker yen helped exporters such as Honda Motor Co. Ltd. T>, but Sony Corp. fell for the third straight session as investors worried about the impact of a growing recall of Sony batteries for laptop computers.

''Last week's data and the tankan confirmed that the Japanese economy is not as bad as we had thought, and that gave investors relief,'' said Masayoshi Yano, a senior manager of investment information at Tokai Tokyo Securities Co. Ltd., referring to consumer price and industrial production data on Friday that reflected a steady economic recovery.

''That makes it easy for investors to chase after shares of companies whose earnings outlooks are solid.'' Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities Co.

Ltd., agreed that the market seems to ready to test the next resistance level of 16,400.

''Investors can be more confident about the outlook, and there are also hopes that companies will upgrade their forecasts,'' he said. ''Share prices will be adjusted accordingly. Market sentiment has shifted.'' The Nikkei climbed 126.71 points to 16,254.29, its highest close since Sept. 6. The broader TOPIX index was up 0.89 percent at 1,625.12.

The headline figure in the BOJ's tankan corporate sentiment survey, the diffusion index (DI) for big manufacturers, stood at plus 24, the highest since September 2004, up from plus 21 in June.

BLUE-CHIPS SHINE Buying centred on blue-chip shares such as those in the TOPIX Core30 Office equipment maker Canon rose 1.6 percent to 6,260 yen, after earlier climbing as high as 6,330 yen, its all-time high based on share-split-adjusted prices.

Shin-Etsu Chemical Co. Ltd., the world's largest silicon wafer maker, which posted its 11th straight year of record profit last year and expects another strong performance this year, gained 0.8 percent to 7,600 yen.

The dollar hit a 5 1/2-month high against the yen on Monday, helping push up exporters such as Honda, which rose 2.5 percent to 4,070 yen. Toyota Motor Corp. added 1.1 percent to 6,490 yen.

Shares of KDDI Corp., Japan second-largest wireless operator, rose 1.8 percent to 749,000 yen after the Nihon Keizai newspaper reported on Saturday that KDDI had agreed to buy Tokyo Electric Power Co.'s fibre optic unit for more than 100 billion yen (5.5 million) in stock.

Shares of Sony fell 1.1 percent to 4,730 yen as investors worried about the impact of a growing recall of its batteries for laptop PCs.

On Friday, Toshiba Corp. and Fujitsu Ltd. joined a growing list of computer makers recalling Sony-made batteries, bringing the total number of batteries recalled to more than 7 million.

''Without a doubt, this is damaging for Sony. However, we've been hearing about this recall for some time, so there is also no need for panic. The company will undoubtedly have to downgrade its profit forecasts by 40 or 50 billion yen,'' said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

Meanwhile, the Tokyo Stock Exchange said after the market closed that it would boost the weightings of companies such as Toyota Motor Corp. and Sumitomo Mitsui Financial Group Inc. in the TOPIX and lower those of several firms including East Japan Railway Co. at the end of October.

The exchange, which compiles the index, said it was making the changes as part of an annual readjustment of the index. The new weightings will better reflect the number of shares that are actually available for trading, it said.

Trade volume increased, with 1.6 billion shares changing hands on the Tokyo Stock Exchange's first section, the highest since Sept.

13. Advancers outnumbered decliners by a ratio of more than two to one.

REUTERS CS PM1422