Nikkei pares gains as losses in China temper US optimism

 

Japan's Nikkei share average pared gains from an early push to a fresh 5-1/2 week high on Monday morning, as sharp losses in Chinese equities tempered optimism stemming from strong US jobs and a weaker yen.

 

The benchmark Nikkei advanced 0.1% to 14,322.22 in midmorning trade, after rising as high as 14,497.65, a level not seen since May 29, on the back of upbeat US jobs data suggesting the world's largest economy was on a solid footing.

 

The broader Topix index edged up 0.1% 1189.55.

 

Both indices erased much of their morning gains as Hong Kong shares extended early losses, with Chinese growth plays hurt after Beijing said it would cut off credit to force consolidation in industries plagued by overcapacity.

 

"It was the tumble in Chinese stocks that sent the Nikkei and Topix lower. But I think the Japanese markets have become less vulnerable to volatile Chinese markets than late June," said Hiroaki Hiwada, a senior strategist at Toyo Securities.

 

At 0205 GMT, the Hang Seng Index was down 2.4%, while the China Enterprises Index of the top Chinese listings in Hong Kong was down 2.8%. The Shanghai Composite Index was down 2.2%.

 

"There are so many positive factors encouraging buyers but at the same time, there is some feeling of overheating in the market. So profit-taking is quite likely," said Toshiyuki Kanayama, senior market analyst at Monex Inc.

 

Data on Friday showed US jobs growth was better than expected in June and the two previous months of gains were revised higher, increasing the likelihood that the US Federal Reserve will begin cutting its massive monetary stimulus, known as quantitative easing, as early as September.

 

The dollar posted broad gains, and US stocks surged as equity investors were cheered by the strong economic momentum which offset some of the concerns over a reduction of the Fed's stimulus.

 

The yen hit a 5-1/2-week low of 101.47 yen to the dollar in early Asian trade on Monday. The pair last traded at 101.15 yen, according to EBS data.

 

Index heavyweight Fast Retailing Co advanced 2.2% and contributed 32 positive points to the benchmark Nikkei, helped by index-related buying and hopes for quarterly earnings due Thursday.

 

Daiwa House Industry Co tumbled 8.4% after the construction company said it would raise up to 137.8 billion yen by issuing 60.5 million new shares and sell 20 million of its own.

 

The Nikkei is down 10% from a 5-1/2-year high touched on May 23, hurt by slowing growth in China and concerns of an imminent rollback of the Fed's bond-buying programme. However, it's still up 38% this year, underpinned by the Japanese government's sweeping stimulus policies.

 

"There is no big reason to sell stocks at the moment," said Kenichi Hirano, a strategist at Tachibana Securities. "I think the Nikkei's rise to 15,000 is well in sight this week."