Nikkei marks best January performance in 13 yrs

Japan's Nikkei share average ended flat on Tuesday, but logged its best January performance in 13 years as investors remained optimistic that the US economic recovery could offset disappointing domestic corporate earnings.

It gained 4.1% in January, much better than its average of 1.37% for the month between 1972 and 2011.

"A lot of people call this is short-covering or month-end window dressing, but the market is definitely in a upward trend," said Yoshihiro Ito, chief strategist at Okasan Online Strategies.

"The fact that Portugal's bond yields rose and reports that Greek talks are facing difficulties is nothing new and it's not a reason to sell. It's all a matter of market sentiment - investors remain hung-up on Europe, but now is not the time to take a wait-and-see approach," he said.

On Tuesday, the Nikkei added 0.1% to 8,802.51, ending a three-day losing streak. The broader Topix eased 0.2% to 755.27, weighed down by shares which reported weaker-than-expected results.

"There is a feeling among market players of exhaustion of bearishness. A lot of (Japanese) stocks are undervalued. A lot of Europe's pessimism has been priced in," said Naomi Fink, head of Japan strategy at Jefferies Japan.

"Meanwhile, you see some slightly better data out of the US., so there is an incipient signal of recovery of the US. For Japan, that means an incipient signal of recovery of overseas demand."

Trading volume increased on Tuesday, with 2.07 billion shares changing hands on the main board, up from 1.65 billion shares on Monday.

Earnings disappoint

Japanese bluechips Canon Inc and Fujifilm Holdings disappointed investors with weak earnings in the latest quarter and profit warnings.

Shares of Canon, a $60 billion camera and printer maker, dropped 4.2% to be the top weighted loser on the Nikkei after it forecast weaker-than-expected earnings growth for 2012, citing worries over a slowing global economy and a strong yen. The company also announced that its president was stepping down.

Fujifilm Holdings tumbled 6.9% after it cut its annual operating profit forecast by 19% and net profit estimate by 48%.

Toshiba Corp also came under pressure and ended down 1.8% on a report that it could see operating profit decline 10% for the year to March. After the bell, its slashed its operating profit outlook by a third to 200 billion yen, down 17% on the year.

According to Thomson Reuters StarMine data, out of the 18 Nikkei companies that have reported quarterly figures, 61% of them came in below market expectations. That compared with 36% of the S&P 500 companies.

Bucking the trend was Sumitomo Mitsui Financial Group, which gained 1.5% after it posted third-quarter earnings, which Morgan Stanley described as "stable earnings in a difficult environment.

Mizuho Financial Group was flat ahead of its earnings announcements after the close.

JPMorgan Asset Management maintained Japanese equities as "overweight" in its multi-asset portfolios and said in its weekly note, "Its economy is expected to enjoy the second fastest growth in 2012 among the G-7 nations, equal with Canada and just behind the US."