Japanese stocks are likely to take a breather this week after recent gains as investors focus on corporate earnings at home and in the United States.
Analysts said technology stocks such as Canon Inc and Sony Corp may face some selling early in the week as investors brace for another batch of earnings from US tech bellwethers such as Microsoft Inc.
Recent high-flyers, such as banks, are also expected to ease after hefty buying of domestic-oriented stocks last week helped the Nikkei average hit a 32-month high.
"Many Japanese stocks are no longer seen as a bargain considering their valuation," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"We're now facing a tough question of which stocks to invest in next," Akino said.
US technology stocks sagged on Friday after disappointing earnings news from International Business Machines Corp (IBM) and Nokia Corp, although blue chips ended higher as fears of an imminent interest rate hike began to ease.
The Dow Jones industrial average rose 0.52 percent to 10,451.97 points, while the tech-heavy Nasdaq composite index slipped 0.32 percent to 1,995.74.
Traders expect the Nikkei to trade between 11,600 and 12,000 this week. On Friday, it rose 0.2 percent to 11,824.56.
The Nikkei hit a 32-month high of 12,189.98 at one point on Thursday, but then fell sharply as foreigners sold bank and real estate stocks, triggering broader profit-taking.
Over the week, the Nikkei gave up 72.95 points, ending a four-week run of gains during which it added 735 points.
Yasuo Ueki, analyst at consultancy Poko Financial Office, said the market's fundamentals remained solid.
"The correction is likely to last for a few days, but the downside is limited as hungry buyers will hunt laggards and companies with bright earnings prospects," he said.
Japan's annual corporate earnings season gets into full swing later this month, although several key companies have already unveiled their fiscal 2003/04 results.
Leading Japanese high techs begin reporting annual earnings in the last week of April, but analysts said investors may stay clear until firms like Microsoft, Motorola Inc and Lucent Technologies Inc report later this week.
Among companies reporting this week are Kao Corp, Japan's biggest household products maker, and Yahoo Japan Corp, the country's top Internet portal, which is owned 33 percent by Yahoo Inc.
In the meantime, buyers may chase lagging stocks, such as those of shipbuilders and steel makers, said Takahiko Murai, general manager at Nozomi Securities.
"The market still has ample money and energy. Investors are just at a loss about what to do next," he said.
"That's why many are chasing laggards in the domestic sector as these stocks appear to be less at risk from volatility in the currency market and on Wall Street," he said.
With interest rates in mind, investors in Japan and elsewhere will be paying close attention to Federal Reserve Chairman Alan Greenspan, who will testify before the congressional Joint Economic Committee on Wednesday.
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