Japan's TOPIX index edged up to a 21-month high on Monday, led by steel makers with bright earnings outlooks such as Nippon Steel, but the market's gains were capped by technical indicators pointing to overheating.
"The market is in a tug-of-war right now, between technical indicators suggesting overheating on the one hand and bullish factors like a weaker yen and continued buying by foreign investors on the other," said Shigemi Nonaka, chairman of Polestar Investment Management.
The TOPIX index of all first-section issues edged up 0.09 percent to 1,132.03, its highest close since June 3, 2002.
The 225-share Nikkei average closed down 0.30 percent at 11,502.86 after touching a peak of 11,643.37, its highest intraday level since June 6, 2002.
Nippon Steel, the world's second-biggest steel maker, jumped 3.62 percent to 229 yen, helping lift the iron and steel index by 2.89 percent and making it the biggest sector winner for the day.
Nippon Steel said last week that strong demand for steel in China meant it was on target to hit its forecast of a 210 billion yen ($1.9 billion) group operating profit for the year ending this month, which would be its biggest since the 1989-90 business year, at the height of Japan's bubble economy.
"The next leg of the Nikkei's rally will likely be led by blue-chip exporters and materials industries like steel that are enjoying strong earnings growth," said Polestar's Nonaka.
The Nikkei rose to around seven percent above its 25-day moving average on Monday - a level that some traders see as overheated - but with foreign investors helping to lift trading volume, and traditional financial year-end selling by big banks and institutions fading, many remain bullish.
"Selling pressure is easing as we move further into March, and investor demand remains strong. There's a good chance the Nikkei will top 12,000 by the end of this month," said Yusuke Sakai, manager of equities at Mizuho Securities.
Volume remained brisk, with 1.89 billion shares changing hands on the first section, above Friday's 1.81 billion shares and February's average of just 1.06 billion shares a day.
Gainers outnumbered decliners 867 to 566 on the Tokyo bourse's first section.
A handful of exporters continued to find support from a recent rise in the value of the dollar against the yen, which helps inflate the overseas earnings of Japan's export giants.
Toshiba Corp, Japan's biggest chip maker, rose 2.56 percent to 480 yen after the dollar rallied to a five-month high above 112 yen late last week.
Real estate shares came under pressure as investors started to lock in profits on a rally that has buoyed the sector by around 31 percent so far this calendar year.
Mitsubishi Estate, Japan's biggest property developer by market value, lost 2.54 percent to 1,380 yen, while rival Mitsui Fudosan Co Ltd slipped 1.19 percent to 1,241 yen.
Shares in tyre makers posted strong gains after Yokohama Rubber Co Ltd, Japan's No 2 tyre maker, said on Friday it planned to raise its tyre prices by an average of five to six percent to help make up for a recent rise in the price of rubber.
Yokohama Rubber shot up 7.87 percent to 370 yen, while Sumitomo Rubber Industries Ltd, the maker of Dunlop-brand tyres, jumped 10.34 percent to 747 yen.