The Nikkei share average rose 0.12 percent to a 7-1/2-month closing high on Tuesday, supported by gains in financial shares as investors saw chances of more industry consolidation and on optimism over Japan's economy. Electronic components maker Alps Electric Co jumped after Credit Suisse First Boston upgraded its rating, and several other tech shares got a lift from hopes for an earnings recovery. But firms that have posted poor earnings, including Fuji Heavy Industries Ltd, took a beating, trimming the market's overall gains.
The Nikkei rose 14.29 points to 11,646.49, ending at its highest level since July 2 for a second straight day.
But the broader TOPIX index gave up 0.04 percent to 1,168.19.
The Nikkei has gained 1.5 percent in the last three days and is up 4.7 percent since January 24, when it tumbled to a year-to-date low of 11,121.63.
Japan's October-December gross domestic product data, to be released at 8:50 am on Wednesday (2350 GMT Tuesday), is expected to show the economy posted another quarter of virtually flat growth.
But Nomaguchi said investors were now betting on a pickup in growth from the January-March quarter.
Trade was active but slowed from the previous day, with 1.52 billion shares changing hands versus 1.84 billion on Monday. The daily average in February last year was 1.16 billion shares.
Decliners outnumbered gainers 857 to 596.
Sumitomo Trust & Banking Co, Japan's sixth-biggest bank by assets and one of the top banks by earnings, gained 1.8 percent to 728 yen.
Non-life insurer Aioi Insurance Co climbed 2.4 percent to an eight-month closing high of 508 yen. Credit Saison Co jumped 2.2 percent to 3,700 yen, becoming the fourth-biggest contributor to the Nikkei's rise.
SMFG, however, shed 0.4 percent to 715,000 yen and Daiwa dropped 1.5 percent to 723 yen.
Alps Electric climbed 2.8 percent to 1,504 yen after CSFB upgraded its rating to "outperform" from "neutral", citing strong profits expected next business year in its electronic parts division, including hard disk drive heads.
Other notable gainers included Elpida Memory Inc, the world's fifth-largest DRAM chip maker, whose shares rallied 5.8 percent to 4,590 yen. Its shares have gained 12.5 percent since Wednesday, when Chief Executive Yukio Sakamoto told Reuters that chip demand had hit bottom.
Societe Generale's chief economist Akio Yoshino said that although he thinks the recent rally in financial stocks seems overdone, he is little concerned about the market's outlook considering the recent sharp improvement in liquidity.
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