TOKYO, Feb 20 Japan's broadest stock index ended up 0.16 percent on Tuesday after earlier

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TOKYO, Feb 20 (Reuters) Japan's broadest stock index ended up 0.16 percent on Tuesday after earlier hitting a 15-year peak as Nippon Steel Corp. and its peers gained while the technology-laced Nikkei average slipped 0.01 percent ahead of the outcome of the Bank of Japan's policy meeting.

Shares of Nissan Diesel Motor Co. Ltd. shot up after Swedish truck maker Volvo announced it would take over Nissan Diesel for $1.1 billion.

The TOPIX index inched up 2.77 points to end at 1,782.73, the highest close since April 2006. The index during the day rose as high as to 1,784.20, a level last seen in November 1991. The TOPIX has so far added 6 percent since the start of this year.

The Nikkei was down 0.97 point at 17,939.12.

The market looks ready to aim higher but Stefan Rheinwald, head of research at the Japan office of CLSA Asia-Pacific Markets, said that investors simply flocked to stocks yielding high dividends ahead of March book closing.

Many stocks pay out dividends to shareholders as of March.

''The top 10 stocks year-to-date contributed more than a third of the TOPIX performance. The TOPIX obviously has 1,700 members,'' said Rheinwald.

''It's a very, very concentrated performance. It's not driven by the broad market.'' Since the beginning of January, the best performing sectors include shipping, steel and real estate. Utilities and telecoms have also booked about 10 percent gains this year, although these sectors were the only two sectors whose earnings are likely to fall in the next fiscal year, said Rheinwald.

Toru Kitani, senior investment manager at Sompo Japan Asset Management, also remains sceptical about the further upside potential.

''Earnings growth is slowing down. It won't be easy for the TOPIX to extend gains,'' he said.

STEEL SHINE Expectations for mergers and acquisitions swelled after Nippon Steel Corp, the world's second-biggest steel maker, raised its stake in its affiliate Nakayama Steel Works Ltd. in a move to fend off potential hostile takeover bids.

Nippon Steel rose 2.6 percent to 785 yen and Nakayama Steel Works surged 6.6 percent to 501 yen.

Other steel shares also gained ground with JFE Holdings Inc.

up 1.5 percent and Sumitomo Metal Industries Ltd. gaining 4.2 percent.

Takahiko Murai, general manager of equities at Nozomi Securities, said investors were moving in on steel stocks whose valuations look discounted.

Despite a recent strong performance, Nippon Steel is currently trading at a PE ratio of 16 times. That compared with 22 for the TOPIX.

''Investors expect the PE ratio for steel stocks to rise as high as to near 20, the market average,'' Murai said.

Meanwhile, Nissan Diesel surged 18.1 percent to 523 yen after Volvo's announcement offering 540 yen in cash for all the shares it does not own.

Trade volume rose from Monday, with 2.2 billion shares changing hands, in line with an average daily trading volume of 2.2 billion shares in January. Declining shares outnumbered advancers 893 to 645.

REUTERS CS DB1300

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