Nikkei rebounds on strong GDP, but Aozora sinks

TOKYO, Nov 14 (Reuters) The Nikkei climbed 1.7 percent on Tuesday, rising for the first time in five sessions after stronger-than-expected gross domestic product data sparked a rebound in Sumitomo Mitsui Financial Group Inc. and other firms sensitive to domestic demand.

But shares of Aozora Bank Ltd., a Japanese lender floated by U.S.

private equity firm Cerberus, slumped in their market debut, marking a weak start for Japan's biggest IPO in eight years.

''The market was ready for a rebound and then on top of that we had the GDP. That is what has caused this positive reaction,'' said Yutaka Miura, deputy manager of equity information at Shinko Securities.

Japan's economy expanded 0.5 percent in the three months to September compared with the preceding quarter, beating market expectations of 0.2 percent growth in price-adjusted terms.

''Companies that are sensitive to the domestic economy had seen a lot of selling in particular, so I think investors are now covering their short positions in those stocks,'' Miura said.

The Nikkei climbed 270.13 points to 16,292.62 by the close of the morning session. The broader TOPIX index advanced 1.70 percent to 1,595.44.

Trade was relatively active, with 852 million shares changing hands on the Tokyo exchange's first section, compared to last week's morning average of 782 shares.

Advancing shares beat decliners by a ratio of nearly seven to one.

BANKS GAIN Sumitomo Mitsui, Japan's third-largest lender, rebounded 5.4 percent to 1.24 million yen after falling more than 8.5 percent over the previous five sessions.

Investors have recently sold lenders and other firms sensitive to domestic demand due to concern that growth in the world's second-largest economy had been slowing.

''Short-covering seems to be particularly focused on banks at the moment,'' said Jun Morita, fund manager at Chibagin Asset Management.

''These stocks have fallen steeply, so investors stand to make a solid profits by closing out their short positions now.'' Mitsubishi UFJ Financial Group Inc., the world's largest lender by assets, rose 2.9 percent to 1.44 million yen. Mizuho Financial Group. Inc., Japan's second-largest bank, advanced 4 percent to 868,000 yen.

Their gains made the banking sector IBNKS.the top percentage gainer among the TOPIX's 33 sectors AOZORA SLUMPS Shares of Aozora finished the morning down at 508 yen, more than 10 percent below their IPO price of 570 yen.

Lukewarm demand for Aozora among primary investors had forced private equity firm Cerberus to price the listing near the low end of its target range at the end of book-building last week.

It was the first time in two years that a Japanese IPO had failed to price at the top of its range.

''In terms of valuation the stock does not look cheap,'' said Chibagin's Morita.

''And I think that has been the market's evaluation. There doesn't seem to be any reason to buy the stock.'' Shares of machinery stocks also rebounded, with Okuma Holdings Inc. gaining 9 percent to 1,108 yen.

The machine-tool manufacturer fell more than 4 percent in the previous session, hurt by weaker-than-expected machinery orders data last week.

The company was also boosted after the Nihon Keizai Shimbun said on Tuesday the company will likely post a record profit for the year to March 2007, thanks to a weak yen and the brisk capital spending by airlines and energy companies.

Shares of chip-equipment company Disco Corp. rose 8 percent to 7,280 yen after the firm posted a 142 percent jump in first-half group net profit and raised its full-year estimate.

Investors were also looking ahead to earnings results from Tokyo Electron Ltd. later in the day.

REUTERS BDP ND0938