Japan's Nikkei average rose 0.05 percent on Tuesday to its highest finish since April 8, with optimism over company earnings propping up blue chips such as Canon Inc but Toyota Motor Corp retreated after a brokerage downgrade, while caution over how Wall Street will react to quarterly earnings due later in the day from Intel Corp weighed on Advantest Corp and other tech stocks.
Recent gains in US and other markets made Japanese shares appear to be lagging.
The Nikkei has risen 6.3 percent in the last three months, compared with an 11 percent rise in the US Nasdaq, an 8.4 percent rise in the FTSEurofirst 300 index and a 15 percent gain in the Korea Composite Stock Price Index
While a host of quarterly US earnings reports are due this week, Japan's earnings peak next week. Several companies including Hoya Corp announce their latest results on Wednesday.
Canon, the world's top digital camera maker and on track to hit another year of record profit, rose 1.2 percent to 6,090 yen, its best close since September 2003.
Toyota, the world's second-biggest auto maker, was the most active issue by value. It fell 0.2 percent to 4,180 yen after Merrill Lynch downgraded its rating to "neutral" from "buy", saying profit growth was set to slow in the near term due to factors such as investment costs and higher materials prices.
Merrill at the same time raised its rating on Honda Motor Co to "buy" from "neutral". Honda, Japan's third-biggest auto maker, was up 1.1 percent at 5,650 yen.
Advantest, a maker of chip-testing devices, lost 0.8 percent to 8,240 yen. NEC Electronics Corp, the world's eighth-largest chip maker, was down 0.5 percent at 4,200 yen.
Caution ahead of the results from Intel, the world's largest chip maker, added to weak sentiment towards the chip sector after a loss warning earlier this month by NEC Electronics.
Shares in Panasonic products maker Matsushita Electric Industrial Co edged down 0.3 percent to 1,765 yen, taking in stride bullish company comments on its plasma TV business.
Masaaki Fujita, head of Matsushita's plasma TV unit, said in an interview with Reuters on Tuesday that the plasma business had cleared its target for profitability in the April-June quarter as production yields were above 90 percent. Another notable gainer was electric machinery manufacturer Fuji Electric Holdings Co, which jumped 6.7 percent to 380 yen after it said it would boost hard disk production through an investment of 45 billion yen ($402.3 million) by 2008.
Several investment trusts focusing on domestic firms with high dividend payments are scheduled to launch in the next two weeks, luring short-term investors to dividend plays, such as steel maker Sumitomo Metal Industries Ltd.
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