* Nikkei erases early gains as yen regains strength
* Short-term technical signal suggests market overheated
* Foreigners' net buying of Japan stocks highest since April
By Chikafumi Hodo and Ayai Tomisawa
TOKYO, Dec 9 (Reuters) - Japan's Nikkei average edged higher
on Thursday but backed off from a fresh seven-month high as the
yen regained strength and a closely watched short-term technical
signal suggested the market was overbought.
Keen interest from foreign investors, which has driven Tokyo
equities 12 percent higher since the beginning of November,
appeared to be in place, market players said. Capital flows data
showed they were net buyers for a fifth straight week last week.
The Nikkei reached a session high of 10,298.25 -- the highest
since May 18 -- but ran out of steam as investors sold to adjust
their positions ahead of the settlement of futures and options
prices on Friday.
But in a sign that Nikkei have become quite overheated, its
short-term up-down ratio, which compares the number of shares
that have risen against those that have fallen over a 25-day
period, was now at its highest level since 1977 at around 158.27,
said Yumi Nishimura, a senior market analyst at Daiwa Securities
Capital Markets.
A figure above 120 is seen as overheated.
The benchmark Nikkei <> closed the morning session up
0.2 percent at 10,253.72, while the broader Topix index <>
rose 0.2 percent to 888.74.
The dollar took a breather in Asian morning trade on
Thursday, standing at 83.73 yen <JPY=> after reaching a high of
84.31 yen on trading platform EBS the previous day.
"The dollar's recent firmness is clearly positive for
Japanese stocks, but the market needs to consolidate before
extending more gains," said Koichi Ogawa, chief portfolio manager
at Daiwa SB Investments.
Foreign investors' net buying of Japanese stocks reached the
highest since early April at 210.7 billion yen in the week to
Dec. 4, finance ministry data showed. []
They were net buyers for the fifth straight week, bringing
their total net buying to 730.6 billion yen over that period and
out of the last 10 weeks they were net buyers for nine.
"Foreigners are still in a phase of raising their weighting
for Japanese stocks as they have outperformed other markets over
the last few months. Their buying is the key reason behind the
Nikkei's strength," Daiwa SB's Ogawa said.
The Nikkei's 12 percent gain since November has overshadowed
other markets, with the Dow Jones industrial average <>
rising 2.2 percent, while the Shanghai Composite Index <>
fell 7.2 percent during that time.
Market analysts are also bullish longer term. The Nikkei is
likely to end 2011 at the pre-Lehman shock level of 12,000,
according to a median forecast of 24 market participants polled
by Reuters in the past week. Projections ranged from 9,200 to
14,000.
Shares in Japan's three biggest banks rallied on positive
indications for the sector, including gains for their U.S. rivals
as a spike in Treasury yields has made lending and trading more
profitable, and for European banks as investors bet that concerns
about the euro zone debt crisis will slowly abate.
Tokyo market players have also said that foreign investors may
start turning their attention to financial stocks after picking
up mainly exporters in the recent rally.
Mitsubishi UFJ Financial Group <8306.T>, Japan's biggest bank
by assets, gained 2.2 percent to 411 yen, while Sumitomo Mitsui
Financial Group <8316.T> added 2.2 percent to 2,678 yen. By the
midday break the two banks already traded slightly above their
average volume for the past month.
Daikin Industries <6367.T> rose 1.8 percent to 2,924 yen
after Credit Suisse increased its target share price to 2,900 yen
from 2,800 yen, citing its positive briefing on its China
business.
But silicon wafer-maker Sumco <3436.T> fell 4.1 percent to
1,161 yen, extending losses for a second straight session, after
widening its annual loss forecast.
($1=83.99 Yen)
(Additional reporting by Antoni Slodkowski; Editing by Edwina
Gibbs)
