Nikkei hits 3-month high as Toyota gains ground

TOKYO, June 1 (Reuters) The Nikkei share average briefly topped 18,000 for the first time in three months on Friday, as exporters such as Toyota Motor Corp. rose after data showed an upbeat outlook for the US economy, a key market for Japanese products.

Shares of Itochu Corp. and other trading firms advanced after Morgan Stanley raised its share price targets for five of the industry's largest firms, citing strong earnings and attractive valuations. ''While the GDP data was revised down, if you look closely at the figures there are some positive numbers. I think the Tokyo market is reacting to that,'' said Takashi Ushio, head of the investment strategy division at Marusan Securities.

The Nikkei finished the morning up 0.63 percent at 17,987.54. It earlier topped 18,000 for the first time since late February.

The broad TOPIX index rose 0.84 percent to 1,770.40.

Trade was active, with 1.2 billion shares changing hands on the Tokyo exchange's first section. Advancers beat decliners by a ratio of nearly three to one.

Toyota gained 2.3 percent to 7,470 yen.

Canon Inc. rose 0.8 percent to 7,220 yen.

Shares of Mitsubishi Heavy Industries rose 2 percent to 754 yen after BAE Systems Plc said it was in talks with Japan's biggest machinery maker on a licensing deal for the Eurofighter Typhoon if Japan chooses to buy the plane.

UPSIDE FOR JAPAN? The Nikkei has been one of the worst performers among major world stock benchmarks this year -- up just 4.4 percent -- and some markets participants are betting on bigger gains ahead.

One stumbling block may be valuations. The Nikkei currently has a price-to-earnings ratio of 20.2, according to Reuters data.

That's well above the Dow's ratio of 15.7 and about 13 for the U.K.'s FTSE 100's But factor in the likelihood of upward earnings revisions from Japanese companies and stocks here start to look less expensive, said Yoku Ihara, manager at the investment information department of Retela Crea Securities.

''Current price-to-earnings ratios are all based on conservative earnings forecasts,'' Ihara said.

Trading company Itochu jumped 4.6 percent to 1,390 yen after Morgan Stanley lifted its target price to 1,465 yen from 1,234 yen.

Mitsui&Co. Ltd. gained 3.8 percent to 2,490 yen. The brokerage raised its target 2,406 yen from 2,166 yen.

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