Bloomberg News

Nikkei 225 Rises Most in Month as U.S. Leaders Strike Debt Deal

August 01, 2011

Aug. 1 (Bloomberg) -- The Nikkei 225 Stock Average gained the most in a month after U.S. President Barack Obama said congressional leaders reached an agreement to raise the federal debt ceiling and avert a default.

Honda Motor Co., which counts North America as its biggest market, increased 1.5 percent as a gain in the dollar boosted its earnings outlook. Hitachi Construction Machinery Co., which gets 26 percent of its sales in China, gained 2 percent after a mainland manufacturing index beat estimates. Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, climbed 4.1 percent after reporting first-quarter profit tripled.

“Investors who were very concerned about the debt ceiling negotiations now need to buy back their positions,” Yoshihiro Okumura, who helps manage the equivalent of $365 million at Chiba-Gin Asset Management Co. in?Tokyo. “There had been a lot of risk aversion because a default would have meant that the U.S. government would lose the ability to stimulate the economy with public spending.”

The Nikkei 225 rose 1.3 percent to 9,965.01 at the 3 p.m. close in Tokyo, the most since June 29. The broader Topix index increased 1.2 percent to 851.70, with about four stocks rising for each that fell. The gauge slid 3.2 percent last week amid concern that the U.S. would default on its debt if lawmakers were unable to break a deadlock on raising the federal borrowing limit by an Aug. 2 deadline.

‘Default Fears’

Futures on the Standard & Poor’s 500 Index jumped 1.6 as congressional leaders reached a bipartisan agreement to raise the debt ceiling by at least $2.1 trillion, sufficient to serve the government’s needs into 2013. Republican and Democratic leaders now have to sell the deal to skeptical members of their own parties by tomorrow in Washington.

The House plans to vote today and the Senate may follow suit to consider the agreement.

“Fears of a partial U.S. government shutdown or default have been the main worry for investors,” said Sydney-based Shane Oliver, head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “Nervousness is likely to remain high as the deal will still have to pass both houses of Congress.”

The dollar climbed versus the yen after Obama said that congress was making progress on a deal. The Dollar Index, which tracks the currency against six counterparts, fell in July as debt talks and concern over slow growth damped demand for the greenback.

China’s Factories

Exporters to the U.S. advanced on speculation a stronger dollar will help boost income from overseas. Honda Motor climbed 1.5 percent to 3,125 yen. Fanuc Corp., Japan’s biggest maker of industrial robots, advanced 4.6 percent to 15,280 yen. Kyocera Corp., a maker of solar panels that gets 17 percent of its revenue in the U.S., gained 1 percent to 8,330 yen.

Hitachi Construction gained 2 percent to 1,776 yen after the China Federation of Logistics and Purchasing said the mainland’s Purchasing Managers’ Index was at 50.7 for July compared with 50.9 in June. That was higher than every forecast in a Bloomberg survey of 13 economists. The median estimate was for a reading of 50.2.

Today’s data may ease concern that Premier Wen Jiabao’s campaign to tame inflation will trigger a deeper slowdown that limits China’s contribution to global growth. The government needs to sustain domestic demand as a sluggish U.S. recovery and a sovereign debt crisis in Europe saps export demand.

Earnings Surprises

Stocks also advanced after companies reported positive earnings. Of the 643 Japanese companies that have released quarterly earnings results since July 11, 101 have reported profit surprises, exceeding 63 firms that reported disappointing results, according to data compiled by Bloomberg.

“More and more companies are reporting earnings that exceed analysts’ estimates or raising profit forecasts,” said Kazuhiro Takahashi, a general manager at Daiwa Securities Capital Markets Co. in Tokyo. “That’s bringing a feeling of hope.”

Mitsubishi UFJ Financial advanced 4.1 percent to 408 yen, the most since March 22. The bank said on July 29 that first- quarter profit rose to 501 billion yen ($6.5 billion), tripling from a year earlier. The lender said it had a 291 billion yen gain related to the conversion of Morgan Stanley preferred shares into common stock.

Docomo, Denso

NTT DoCoMo rose 1.6 percent to 143,800 yen. The company said on July 29 that profit increased 12 percent to 158 billion yen for the April-June period because of cost reductions.

The Nikkei 225 lost 3.9 percent this year through July 29, compared with a gain of 2.8 percent by the S&P 500 and a drop of 3.8 percent by the Stoxx Europe 600 Index. Stocks in the Japanese benchmark index were valued at 16 times estimated earnings on average, compared with 12.9 times for the S&P 500 and 10.8 times for the Stoxx 600.

Denso Corp., Japan’s biggest car-parts maker, gained 2.9 percent to 2,834 yen after raising its half-year profit forecast to 9 billion yen from 1 billion yen on a faster-than-expected recovery from the March 11 earthquake.

Toto Ltd., a maker of ceramic fixtures including toilets, jumped 6.3 percent to 640 yen. The company raised its full-year net income forecast 18 percent to 13 billion yen, citing a recovery in domestic demand.

--With assistance from Jonathan Burgos in Singapore. Editors: Jason Clenfield, John McCluskey.

To contact the reporters on this story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.


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