Japan's Nikkei average ended in positive territory on Tuesday after touching its lowest in two and a half years on worries about the US economy, its recovery helped by buying of JFE Holdings and other steel firms.
A late wave of short-covering helped lift even banks such as Mitsubishi UFJ Financial Group, which with other major banks touched a nearly four-year low at one point, while talk of an emergency rate cut by the Federal Reserve also gave support.
Market participants said there also appeared to have been bargain-hunting by investors attracted by the inexpensiveness of the Nikkei, which is down 17.3 percent this year, during which it has only had two positive weeks.
"After the market fell this morning, there was speculation by some analysts of an emergency US rate cut, after which short-covering emerged," said Hiroaki Osakabe, a fund manager at Chiba Asset Management. "There hasn't been any real change in the situation, anything all that positive - just that Japanese stocks have fallen a lot recently, especially yesterday."
But players remained wary, saying there is still far too much uncertainty about whether the US economy is actually in recession for any major rebound to take place. "Even though the Nikkei is cheap and technical factors say it may be gradually approaching the bottom, I wouldn't be ready to say we've hit it yet," said Yumi Nishimura, a manager in the investment advisory section of Daiwa Securities SMBC.
A late halt in the yen's advance against the dollar also gave Tokyo shares a boost. At 0607 GMT the dollar was approaching 102 yen It fell as low as 101.42 yen in early trade but held above an eight-year low of 101.40 yen struck on electronic trading platform EBS on Friday.
The benchmark Nikkei ended up 1.01 percent at 12,658.28 for its first positive close in three sessions. It earlier slipped to 12,352.79, its lowest since August 29, 2005. The broader TOPIX was up 0.9 percent at 1,235.15 after also hitting a two and a half year low in early trade.
Buying of steel after several sessions of selling helped spark short-covering across the board. JFE Holdings rose 5.3 percent to 3,960 yen, while Nippon Steel Corp rose 4.4 percent to 478 yen. Major banks all briefly touched four-year lows, caught up in global worries about the banking sector, before being boosted into positive territory.
Mitsubishi UFJ, Japan's biggest bank, hit an intraday low of 823 yen, its lowest since May 2004, before rebounding. It finished up 1.8 percent at 865 yen. Mizuho Financial Group was up 2.3 percent at 397,000 yen, after earlier falling to 373,000 yen, its lowest since March 2004, while No 2 bank Sumitomo Mitsui Financial Group was up 1 percent at 687,000 yen after earlier hitting its lowest level since October 2004. Resona Holdings, Japan's fourth-largest bank, is in talks with several parties about selling its Tokyo headquarters, sources familiar with the deal said.
Resona, which is nearly half-owned by the Japanese government following a 3 trillion yen ($29.48 billion) bailout, still owes about 2.3 trillion yen in public funds. Its shares ended up 3.2 percent at 163,000 yen. Trade picked up, with 2.37 billion shares changing hands, compared with last week's daily average of 2.05 billion. Advancing shares beat declining ones by 1,006 to 599.
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