Nikkei hits two-month closing high, Fed awaited

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TOKYO (Reuters) - Japan's Nikkei stock average rose 0.2 percent to hit a two-month closing high on Monday, led higher by financial players such as top lender Mitsubishi UFJ Financial Group, which jumped 10 percent on improving investor confidence in the sector.

By Aiko Hayashi

TOKYO (Reuters) - Japan's Nikkei stock average rose 0.2 percent to hit a two-month closing high on Monday, led higher by financial players such as top lender Mitsubishi UFJ Financial Group, which jumped 10 percent on improving investor confidence in the sector.

Kyocera Corp jumped 6 percent, becoming the biggest positive contributor to the Nikkei 225, after reporting better-than-expected earnings forecasts, while a softer yen benefited automakers such as Honda Motor Co Ltd

"The U.S. financial sector, which had been calm, helped the market. But the Nikkei eased after topping 14,000 and ahead of a national holiday," said Kazuhiro Takahashi, general manager of the equity marketing department at Daiwa Securities SMBC.

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"But the biggest factor is still the FOMC" policy-setting meeting at the Federal Reserve starting on Tuesday, he said.

UBS upgraded the global banking sector to "neutral," saying that with more than $191 billion of capital raised, bank capitalization was well under way.

"Investors want to see the outcome of the meeting as the market had already factored in the possibility that the Fed may stop cutting interest rates, prompting investors to return to financials," Takahashi said.

Japanese markets will be closed for a national holiday on Tuesday.

The Nikkei average added 30.90 points to 13,894.37, the highest close since February 28. The benchmark has added 2.9 percent in the past week, while it is down about 9 percent so far this year.

The broader TOPIX index gained 1.6 percent or 21.84 points to 1,361.75.

The dollar inched up 0.2 percent to 104.64 yen after hitting a two-month high of 104.83 yen on electronic trading platform on

EBS.

Hoya Corp dropped more than 4 percent after the Japanese high-tech glass maker posted a surprise 27 percent fall in quarterly operating profit, hurt by falling prices of glass used to make flat panel displays.

After the closing bell, Japan's second-largest brokerage, Daiwa Securities Group Inc, said it swung to a quarterly net loss as the credit crunch sparked by the U.S. subprime home-lending crisis led to losses in bond trading.

Shares of Daiwa ended the day up 4.3 percent at 980 yen.

FINANCIALS, EXPORTERS IN FAVOUR

Financials powered higher with shares of Mitsubishi UFJ surging 10 percent to 1,144 yen. No. 2 bank Mizuho Financial Group shot up 9.5 percent to 529,000 yen, and Sumitomo Mitsui Financial Group climbed 9.1 percent to 896,000 yen.

Nomura Holdings Inc jumped 5.2 percent to 1,747 yen even after Japan's largest brokerage on Friday posted a surprise quarterly loss of $1.5 billion on its exposure to bond insurers and warned that it could still be at risk for further credit crisis-related losses.

Shares of Kyocera gained 6 percent to 9,440 yen, while Honda rose 3 percent to 3,430 yen.

Honda rose despite its saying quarterly profit tumbled 86 percent on an unexpected tax bill and forecasting a weak year ahead due to a stronger yen, rising materials costs and a soft U.S. car market.

"Investors can now have hopes for exporters' earnings as the yen is trading around 105 yen against the dollar while many exporters now see the currency rate at around 100 yen against dollar," said Fujio Ando, a senior managing director at Chibagin Asset Management.

"This is a complete change from previous expectations for a fall in their earnings."

Shares of Hoya, a high-tech glass maker, slid 4.4 percent to 2,815 yen, weighing on other precision equipment makers, while Advantest Corp skidded 5.1 percent to 2,875 yen after it said orders for its testers in the January-March quarter were half what they were a year earlier.

Trade picked up on the Tokyo exchange's first section, with 2 billion shares changing hands, compared with last week's daily average of 1.7 billion.

Advancing stocks outpaced decliners by more than 2 to 1.

(Reporting by Aiko Hayashi; Editing by Hugh Lawson)