Nikkei up on futures-led buying, window dressing

Japan's Nikkei average ended higher on Monday, reversing early losses with help from futures-led buying by commodity trading advisers and month-end window dressing by foreign investors who picked up blue-chip cyclical shares.

The banking sector was active with Mizuho Trust & Banking Co and other units of Mizuho Financial Group jumping after a source told Reuters the Japanese bank planned to buy them out in a deal worth about USD 4 billion.

While the Nikkei's fall of almost 3% last week stirred speculation that it may enter a short-term downtrend, market players said bulls were eager to buy on dips, as the factors that had fuelled a rally of about 15% since November -- excess liquidity and stronger corporate earnings -- remained largely intact.

The benchmark Nikkei added 0.9% or 97.33 points to 10,624.09. The broader Topix advanced 1% to 951.27.

Some analysts said program traders could have been buying back futures with the euro above 112 yen in the afternoon, compared with a low of 111.95 in early morning trade.

Others added that, with most investors expecting the market to end weaker on the back of higher oil prices, the program trade buying could have triggered short-covering.

"So many traders might have positioned themselves for a decline, and as soon as some buying started in the afternoon, this buying might have led to short covering," said Mattia Ciancaleoni, director of equity sales at Citigroup.

The Nikkei's gains came despite a climb in oil prices , although market players said the worsening situation in Libya could easily pressure the market again.

"Later this week, optimism about a recovery in the US economy may lift the market," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities, adding that the Nikkei benchmark would likely trade in a wide 10,300 to 10,700 range this week.

Shares of Mizuho Securities Co gained 12.1% to 251 yen in heavy volume, while Mizuho Investors Securities jumped 7.0%  to 92 yen and Mizuho Trust & Banking rose 6.0% to 89 yen.

Mizuho Financial Group plans to buy out minority shareholders in investment bank Mizuho Securities, retail broker Mizuho Investors and trust bank Mizuho Trust, a source with knowledge of the matter told Reuters on Saturday.

Mizuho Financial Group, Japan's second-largest bank by assets, was up 1.8% at 168 yen.

"This consolidation should be a good move in the long term as the bank is expected to streamline businesses and cut costs," said Hideyuki Okoshi, general manager at Chibagin Securities. He noted, however, that it was not yet clear how much dilution Mizuho shareholders would suffer in the financing of the deal.

Shinsei Bank fell 1% to 104 yen after falling as far as 97 yen on dilution concerns on news that it would raise up to 69.4 billion yen (USD 849.2 million) via a new share issue to bolster its capital.

NEC Corp fell 3.4% to 225 yen after it slashed its full-year earnings forecast on Friday, and Goldman Sachs downgraded the stock to "neutral" from "buy" and removed it from its "conviction buy" list.

Blue-chip cyclical shares such as major exporters received a boost from window-dressing by foreign investors, with Toyota Motor Corp rising 1.7% to 3,820 yen and Sony Corp adding 0.9% to 2,993 yen.

Volume rose slightly with 2.5 billion shares changing hands on the Tokyo stock exchange's main board, up from last week's average daily volume of 2.37 billion shares. Advancing shares outnumbered decliners by 1,371 to 221.