Nikkei flat ahead of ECB move, capped below resistance

MARKETS-JAPAN-STOCKS-NIKKEI:Nikkei flat ahead of ECB move, capped below resistance

Japan's Nikkei share average was little changed on Thursday as investors were cautious ahead of a policy decision later in the day by the European Central Bank and as the Nikkei edges closer to resistance formed by its 75-day moving average.

Improved risk sentiment after the European summit last week continued to support Japanese shares, but some market players say the one-month rally in the Nikkei may be soon running out of steam.

The Nikkei rose 0.2 percent to 9,124, just shy of the 75-day average of 9,159, while the broader Topix index also gained 0.3 percent to 780.75.

"Investors' risk appetite is rising. Last month many people were saying the Nikkei wouldn't go above the 9,000 mark but now they are getting more bullish," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.

Following up on the EU leaders' decision to take measures to help drive down bond yields of Spain and Italy, the European Central Bank is widely expected to cut rates, underpinning risk assets including the Nikkei.

If a likely ECB rate cut boosts global share prices, that could help to push the Nikkei above the 75-day average, putting it on course to test another resistance around 9,250, the 50 percent retracement of its slide from a one-year high on March 27 to a six-month closing low of 8,295.63 on June 4.

But some analysts said an ECB rate cut could be a double-edged sword for Japanese exporters, as their profits could be squeezed if the euro falls further against the yen. The euro hit an 11-1/2-year low of 95.59 yen last month and now stood at 100.20 yen.

"The ECB is likely to cut rates today. But if that leads to a fall in the euro against the yen, that would not be good for Japanese stocks," said Yutaka Miura, senior technical analyst at Mizuho Securities.