Nikkei closes at new 4-1/2 year high on BOJ hopes; but Topix low

By Ayai Tomisawa

TOKYO (Reuters) - The Nikkei average closed at its highest level in 4-1/2 years on Tuesday as confirmation hearings for Bank of Japan leadership nominees boosted expectations of aggressive monetary easing, but gains were trimmed on profit-taking in financials and exporters.

Kikuo Iwata, a nominee for deputy governorship at the central bank said that the BOJ must work to achieve its 2 percent inflation target within two years at the latest, a day after Haruhiko Kuroda, the nominee for governor, outlined a forceful policy to defeat deflation.

The Nikkei advanced 0.3 percent to 11,683.45, its highest close since September 2008. At one point, it rose as high as 11,779.42, also its highest level since September 2008.

"(Kuroda) is the absolutely perfect guy in there and probably the best one for the stock market," said Nicholas Smith, Japan strategist at CLSA.

"This is absolutely not a yen story. This is about an asset price reflation story, so don't concentrate your forces in exporters, concentrate on ... banks, brokers and real estate," Smith said.

The market was quick to price in the confirmation hearings, and investors took profits on recently gained exporters, financials and real estates.

"The market is already convinced that there will be easing. But it won't happen until April at earliest, so it's not something new," said Fujio Ando, senior managing director at Chibagin Securities.

Index heavyweight Fast Retailing Co , however, jumped 5.5 percent after its Uniqlo casual-clothing chain posted a 9.6 percent year-on-year increase in same-store sales in Japan last month.

Sony Corp dropped 0.9 percent, Mitsubishi UFJ Financial Group fell 0.8 percent and Sumitomo Mitsui Financial Group declined 0.5 percent.

The banking sector has rallied about 50 percent since mid-November after Prime Minister Shinzo Abe called on the BOJ to embark on bold monetary policy to whip deflation, outpacing a 35 percent rise in the benchmark Nikkei during the same period.

Real estate stocks were weaker, with Mitsui Fudosan Co shedding 2.1 percent and Mitsubishi Estate Co also dropping 2.1 percent, dragging down the broader Topix, which fell 0.4 percent to 988.62.

Volume was moderate, with 3.08 billion shares changing hands. It compares to last week's average daily volume of 3.32 billion shares.

CONCERN

Hisamitsu Pharmaceutical Co Inc sank 5.2 percent after a panel of advisers to the U.S. Food and Drug Administration recommended that the agency reject a drug for hot flashes associated with menopause made by Hisamitsu's subsidiary Noven Pharmaceutical Inc.

Some market players are worried that the latest strength in Tokyo shares may not be justified given an uncertain global economic outlook as the U.S. economy faces automatic spending cuts and Europe struggles with Italian political crisis.

"I think it's becoming a bit like an asset bubble. Retail investors are looking to buy laggards everyday. Their moves determine the direction of the stock market in the short term. They don't care about fundamentals," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.

(Additional reporting by Dominic Lau and Tomo Uetake; Editing by Sanjeev Miglani)