Japan's Nikkei average hit a fresh seven-month closing high on Tuesday as investors reassessed the impact of Elpida Memory Inc's bankruptcy protection filing on the chip sector and bought back some of the stocks they sold earlier in the day. A softer yen, month-end buying and the launch of several new investment trust funds, which is set for Wednesday, also helped reverse earlier losses on the Nikkei, a dealer said.
Buoyed by a run of strong US economic data, the European Central Bank's nearly half a trillion euro liquidity injection, and further easing steps by the Bank of Japan and the Bank of England, the Nikkei is up 10.5 percent this month, on track for its best February performance since 1991.
The benchmark Nikkei closed 0.9 percent higher at 9,722.52 after trading as low as 9,528.77 in the morning session. "The Elpida news triggered a lot of negative sentiment. People ran for cover but they realised they were overselling in names which are unrelated, or names which shouldn't have gone that far. They bought back in the afternoon session," another trader said.
Elpida, Japan's last remaining maker of PC chips, filed for protection from creditors after the bell on Monday with $5.6 billion in debt after failing to find partners to help its revival. The company's bankruptcy filing, the biggest by a Japanese manufacturer, triggered a broad sell-off in its chip-related shares before investors cut their losses in the afternoon.
Advantest Corp ended down 1.5 percent after falling as much as 8.3 percent earlier in the day, while Shin-Etsu Chemical Co dropped 1.3 percent. Tokyo Electron Ltd reversed earlier losses to close 1 percent higher. Elpida was down by its daily limit of 80 yen or 24 percent from the previous session at 254 yen. The broader Topix was up 0.4 percent at 838.48. Nearly 2.51 billion shares changed hands on the main board, up from 2.49 billion shares in the previous session.
Investors will focus on the size of the ECB's longer term refinancing operation gross allotment on Wednesday, as well as net new liquidity. A Reuters poll showed 30 euro money market traders expected the ECB to allot 500 billion euros ($669.75 billion). The Nikkei was deep in "overbought" territory, with the 14-day relative strength index at 82, while slow stochastic, a short-term momentum indicator, also pointed to a retreat.
Some investors were hedging against a sharp pullback, with the Nikkei volatility index, a measure of implied risk over a one month period calculated using futures and option prices, up 7.7 percent. Shippers, which had risen more than 23 percent this month, were the worst sectoral performer on the Tokyo exchange, falling 1.9 percent after Denmark's A.P. Moller-Maersk A/S warned that 2012 group results would see a further decline as it is hit by losses in container shipping. Nippon Yusen KK, Kawasaki Kisen Kaisha Ltd and Mitsui O.S.K. Lines Ltd fell between 1.1 and 2.8 percent.