Nikkei ends 2006 up 6.9 percent, 4th year of gains

Tokyo, Dec 29: The Nikkei share average ended 2006 with a 6.9 percent gain for the year, marking its fourth straight year of growth and its longest bull run in nearly two decades.

Boosted by advances in firms such as steel makers ISTEL. and auto makers ITEQP, as well as increased expectations of mergers and acquisitions among Japanese firms, Tokyo stocks recovered from a steep fall earlier in 2006 to book their longest year-on-year winning streak since the years through 1989.

''For blue-chip stocks, the companies with strong earnings that are globally competitive, it was a very good year,'' said Renji Motohashi, a general manager in the equity department at Shinko Securities.

The Nikkei finished Friday's half-day of trade just 0.01 percent higher at 17,225.83. That marked its highest close since early May. The benchmark had ended 2005 at 16,111.43. The broader TOPIX index ended the day up 0.13 percent at 1,681.07, managing a gain of 1.9 percent for the year. It too booked its fourth year of gains, marking its longest winning streak since 1989.

The Tokyo market will be closed for the New Year holiday until Thursday, Jan. 4, when it will open for a half-day of trade.

Full-day trade resumes from Jan. 5.

Notable performers on Nikkei included Nippon Steel Corp. T> , Japan's largest steel maker. It gained nearly 63 percent during the year, boosted by expectations of industry consolidation following the creation of Arcelor Mittal, the world's largest steel company.

''Investors have expectations there will be further consolidation in the steel industry,'' said Hideyuki Suzuki, investment information manager at SBI Securities.

''Investors believe that M&A (mergers and acquisitions) will be one of the key themes for the market next year.'' Leading exporters such as Canon Inc. also posted significant gains, rising 46 percent this year.

Toyota Motor Corp. gained 30 percent in 2006.

Small Cap Sell-off

Investors also faced plenty of challenges in 2006. An investigation into Internet firm Livedoor Co., and its eventual delisting, sparked a sell-off in Japan's small-cap markets.

The Mothers index of start-ups, once home to Livedoor, lost 56 percent during the year, blunting small investors' desire for stocks.

''Investors bought small-cap stocks hoping for high returns, but the more they bought, the worse it seemed to get,'' Shinko's Motohashi said.

Hurt by investors' waning appetite for risk and nagging concerns about the strength of earnings growth, the Nikkei fell into negative territory for part of the year, dropping as low 14,045.53 in June.

Some investors say Japanese stocks look likely to continue their advance, helped by earnings growth and continued demand for Japanese blue chips.

''I think this year was something of a waiting period. Last year was very strong and I think 2007 will be strong,'' said Soichiro Monji, chief strategist of equity management at Daiwa SB Investments.

The Nikkei rose 40 percent in 2005, boosted by confidence that Japan's long-moribund economy was ready to post steady growth.

In particular, Monji said he likes technology-related stocks, which have underperformed globally.

Reuters