Nikkei ends flat;steel stocks up,recent gainers dip

Tokyo, Dec 28: The Nikkei share average ended flat on Thursday as Nippon Steel Corp. and its peers drew buyers, while Canon Inc. and other recent gainers fell on concern that their prices may have advanced too quickly.

Investors unloaded some stockholdings after slightly weaker-than-expected industrial output data and ahead of the New Year holiday. The Tokyo market will be open for a half-day on Friday and resume trading on Jan. 4 for a half-day.

The Nikkei was up 0.01 percent, or 1.66 points, at 17,224.81. The broader TOPIX index was up 0.12 percent at 1,678.91.

Steel stocks advanced. The steel subindex has so far been the best performing sector for 2006, up 31 percent.

''Investors are looking for stocks that have cheap valuations and high dividends. Mergers and acquisitions are also another factor, and steel stocks fit all the descriptions,'' said Yasuo Yabe, a director of sales at Meiwa Securities.

Nippon Steel, the world's third-largest steel maker, jumped 5.3 percent to 677 yen, a level it has not seen since 1990.

JFE Holdings rose 2 percent to 6,210 yen. Both stocks currently trade at a PE of 12 to 14, compared with the Nikkei 225's 20.

M&A, YEAR OF THE BOAR

Mergers and acquisitions will be one of the main drivers for the stock market ahead, said Takahiko Murai, a general manager of equities at Nozomi Securities.

In the Chinese calendar, 2007 is the Year of the Boar.

''Investors are looking for cash-rich companies which can afford to do M&A,'' he said. Cross shareholding is also becoming popular among companies to be prepared for unwanted takeover bids, helping the stock market remain firm, Murai added.

Naoyuki Torii, general manager and strategist at Fukoku Capital Management Inc., also shares the same view as Murai.

''M&A will improve corporate efficiency and competitiveness.

This is positive for the stock market,'' he said. ''This will lure gobs money flowing into the Japanese market from overseas.'' He said the biggest risk may be the yen and growing yen carry trade, where investors borrow cheaply in Japan to invest in higher-yielding assets overseas. ''Japan is exporting the bubble in Asia and this could burst.'' History shows that Japanese stocks have always advanced in the year of the boar -- which comes round every 12 years -- since the Tokyo Stock Exchange reopened in 1949, according to Daiwa Institute of Research.

ASTELLAS UP

Astellas Pharma Inc. was up 1.1 percent at 5,400 yen after it said it would reduce its treasury stock to between 1 and 2 percent of its outstanding shares this business year, from 8.8 percent.

Ryowa Life Create Co. Ltd. jumped 7.8 percent to 943 yen after a subsidiary of a Lehman Brothers-affiliated investment fund launched a 9 million tender offer for the condominium developer. The fund is offering 950 yen per share.

Canon lost 0.9 percent after hitting this year's high of 6,780 yen last week, while industrial robot maker Fanuc Ltd.

dropped 0.7 percent after rising for two days.

Trade was relatively active for a year-end session, with 1.77 billion shares changing hands on the Tokyo exchange's first section, the highest in five sessions. Decliners edged past advancers by 811 to 754.

Reuters