* Nikkei edges higher, led by futures
* Encouraging U.S. data underlines recovery expectations
* Domestic investors hold back ahead of Japan election
By Elaine Lies
TOKYO, Aug 26 (Reuters) - The Nikkei stock average rose 0.6
percent on Wednesday, buoyed by U.S. data that strengthened hopes
for an economic recovery although investors were cautious about
pushing the index higher ahead of an Aug. 30 election in Japan.
Toyota Motor Corp <7203.T> gained after a source with direct
knowledge of the matter said the world's biggest automaker will
cut its global production capacity to match lower sales.
[]
But analysts said domestic investors were reluctant to
actively take positions ahead of the result of Sunday's election,
which many expect Japan's opposition Democratic Party to win.
Some, though, say the election is already a neutral trading
factor. []
Upbeat data included the Conference Board's August index of
consumer confidence that topped economists' forecasts, while the
S&P/Case-Shiller home price index rose for a second consecutive
month in June, suggesting a recovery in two sectors crucial for
U.S. recovery. [] []
"The data is encouraging because it points to continued
economic improvement, but the Nikkei won't rise that much because
investors are a bit wary about the chances of an adjustment.
After all, it has risen around 50 percent since March," said
Kenichi Hirano, operating officer at Tachibana Securities.
The benchmark Nikkei <> rose 0.6 percent or 67.20
points to 10,564.56, with futures leading the cash market. Trade
continued be thin as it has been this week.
The broader Topix <> rose 0.6 percent to 970.63.
Opinion polls show the main opposition Democratic Party of
Japan set for a sweeping victory on Sunday that would end more
than 50 years of almost unbroken rule by the conservative Liberal
Democratic Party (LDP).
"The election is also making it hard to buy, but I think the
market basically expects a victory by the Democratic party and
has factored that in," said Tachibana's Hirano.
A solid win for the Democrats would raise the chances of
clearing a policy deadlock in parliament, where the opposition
controls the upper house.
"What the market would hate is anything leading to confusion,
such as if the Democrats didn't win a clear majority. That would
mean things continue much the same as they are now," he said.
FOREIGN INVESTORS?
Many Japanese investors are waiting to see how foreign
investors, long a key driver and direction-setter for the Nikkei,
respond to the election results, said Hiroaki Osakabe, fund
manager at Chibagin Asset Management.
For the last month or so foreign investors have been net
buyers of Japanese stocks each week, and market analysts say
their interest may grow even more if the Democrats win.
Exporters, which had weighed on the Tokyo market on Tuesday,
rose on short-covering, with Honda Motor Co <7267.T> up 1 percent
to 3,010 yen, Kyocera Corp <6971.T> up 1.1 percent to 7,680 yen
and Panasonic Corp <6752.T> gaining 1 percent to 1,497 yen.
Toyota rose 1.5 percent to 4,110 yen after the Nikkei
business daily said firm planned to cut its annual global
capacity by 10 percent, or 1 million vehicles, as early as the
current financial year to March 2010. But the source said the
extent and timing of the production cuts had not yet been set.
"The idling of plants had been a negative factor for Toyota,
so the fact they're moving to tackle this should be evaluated
favourably," said Yumi Nishimura, deputy general manager of the
investment advisory section of Daiwa Securities SMBC.
NEC Electronics <6723.T> soared 11.4 percent to 980 yen after
the Nikkei business daily said the company and unlisted Renesas
Technology Corp may get 200 billion yen ($2.1 billion) in aid for
their proposed merger. []
Denki Kagaku Kogyo <4061.T>, whose subsidiary Denki Seiken Co
Ltd is one of four Japanese makers of vaccine for seasonal and
H1N1 influenza, edged up 0.7 percent to 411 yen, extending gains
of 7.6 percent made on Tuesday.
Japan last week confirmed its first three deaths from H1N1
and its health minister said on Tuesday that vaccine will be
ready for distribution at the end of October.
Trade was thin on the Tokyo exchange's first section, with
899 million shares changing hands, below last week's morning
average of 972 million.
Advancing stocks outnumbered declining ones by more than 2 to
1.
(Reporting by Elaine Lies)
