Japanese stocks firmed by mid-afternoon on Wednesday, but gains were limited as growing security fears hit blue chips, eclipsing gains in domestic demand-related stocks such as banks and realtors. Analysts said a slew of upbeat economic data and an upgrade on Japan's outlook by Standard & Poor's encouraged some investors to step up buying in banks and realtors. But caution was overwhelming the market as investors awaited the next phase of the escalating violence in the Middle East. "Although we have seen a series of upbeat data and reports about Japan's macroeconomy, we're still unsure about the global economic recovery, Wall Street's outlook and currency markets because of the political tension in Israel," said Yoshihiko Kosuga, an equities general manager at Mizuho Investors Securities. "I am concerned that if security fears keep weighing on U.S. stocks, then that might also discourage foreigners from buying Japanese stocks." On Tuesday, Israel vowed to kill more top Palestinian militants after it assassinated Hamas' spiritual leader Ahmed Yassin on Monday.
Hamas named a new leader for Gaza seen as a hardliner even within a group that uses suicide bombing as its main weapon. In Tokyo, the benchmark Nikkei average <.N225> added 0.25 percent to 11,310.27 by 0507 GMT. It rose as high as 11,318.12 in mid-morning shortly after Standard & Poor's said it had raised its outlook on Japan to stable from negative and affirmed its AA-/A-1+ ratings, saying growth prospects for the world's second biggest economy were improving. The broader TOPIX index <.TOPX> was up 0.78 percent at 1,141.38 by mid-afternoon. Japan's biggest auto maker, Toyota Motor Corp <7203.T>, dropped 1.86 percent to 3,690 yen. Rival Honda Motor Co Ltd <7267.T>, which generates more than two-thirds of its sales overseas, declined 1.05 percent to 4,690 yen. Consumer electronics giant Sony Corp <6758.T> lost 1.65 percent to 4,180 yen while Canon Inc <7751.T>, Japan's biggest maker of office equipment, dropped 1.35 percent to 5,100 yen.
But growing optimism about Japan's economic recovery boosted domestic-oriented stocks such as banks and realtors. Standard & Poor's director Takahira Ogawa, speaking shortly after raising the outlook on Japan's ratings, said the nation's industries had strengthened, its banking sector was less fragile than a year ago and deflation was showing signs of easing. Real estate firms racked up hefty gains with the sector's subindex <.IRLTY.T> rising 3.56 percent. Industry leader Mitsui Fudosan Co <8801.T> gained 3.8 percent to 1,257 yen while rival Mitsubishi Estate Co <8802.T> rallied 5.33 percent to 1,402 yen. Mizuho Financial Group <8411.T>, Japan's biggest banking group, rose 4.35 percent to 432,000 yen. The gains came after the state-backed Deposit Insurance Corp (DIC) said on Tuesday that several Japanese banks, including Mizuho, planned to return some of the public funds they received in 1998/99 by the end of the month. The move fits in with expectations that Japan's top banks may be closer to cleaning up their balance sheets and returning to financial health.///