Nikkei rises 1.2 percent

The Nikkei average rose 1.2 percent on Wednesday from a three-year low hit the previous day, after the Federal Reserve's bailout of American International Group worked to calm some of the turmoil ravaging Wall Street. Financial shares such as top lender Mitsubishi UFJ Financial Group regained some ground after the collapse of Lehman Brothers triggered a 5 percent market slide on Tuesday.
"If AIG had failed, it would have had huge ripple effects throughout the system," said Takashi Kamiya, chief economist at T & D Asset Management. "But that news alone is not enough to actively push up the market. Further market gains will be tough because investors have become risk-averse due to the credit squeeze."
The US Federal Reserve said it would provide an $85 billion bridge loan to AIG and take nearly 80 percent in the company in a dramatic about-face as victims of the financial crisis kept piling up. But the Nikkei gave up some earlier gains after rising as high as 2.3 percent at one stage, pressured in part by a report from broadcaster CNBC that US investment bank Morgan Stanley is weighing a possible merger with a bank.
"The report indicates the crisis is not over," said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities. The Nikkei average added 140.07 points to 11,749.79. On Tuesday, it booked its lowest close since July 2005. The broader Topix inched up 0.4 percent to 1,121.43.
In a widely expected move, the Bank of Japan maintained its overnight call rate target at 0.5 percent by a unanimous vote and maintained its assessment of the economy, which it said was still sluggish. Recently battered Mitsubishi UFJ shares rose 1 percent to 800 yen and Sumitomo Mitsui Financial Group added 0.7 percent to 623,000 yen, while Mizuho Financial Group fell 0.7 percent to 415,000 yen. Both Sumitomo Mitsui and Mizuho lost about 10 percent on Tuesday, their worst daily percentage drops in nearly five years.
Canon Inc gained 3.4 percent to 3,970 yen, buoyed by the dollar's sharp gain against the yen and by a share buyback of up to $479 million. The digital camera maker's shares had lost a quarter of their value over the past month. The dollar jumped 0.8 percent to 106.50 yen, extending Tuesday's sharp rise from a four-month low of 103.54 yen.
But shares in Toyota Motor shed 0.4 percent to 4,590 yen after the president of Toyota Motor Sales USA said on Tuesday the US housing market remains a drag on auto sales, and the industry probably will not return to former peak levels until sometime next decade. Honda Motor Co slid 1.5 percent to 3,310 yen, one of the top drags on the Nikkei.
Shares of Fuji Fire and Marine Insurance tumbled 10.9 percent to 230 yen on investor speculation that AIG might be forced to sell its 20.86 percent stake in Fuji Fire and Marine in the wake of its $85 billion bailout. Trade picked up on the Tokyo exchange's first section, with 2.26 billion shares changing hands, above last week's daily average of 2.11 billion. Advancing stocks outpaced declining ones, 994 to 647.