The Nikkei stock average climbed on Friday for a second day, cutting its losses for the week to just over 1 percent as hedge funds tip-toed back into the market, betting that an easing of fears over Europe's banking sector would sustain the short-term bounce.
Caution ahead of U.S. payrolls data later in the day kept volumes light as the previous session's short covering-led gains spilt over into Friday, on hopes that a plan to support Europe's financial sector was making progress.
The Nikkei closed up 1 percent at 8,605.62, although it fell 1.1 percent for the week. The broader Topix , which earlier this week briefly broke below its post-quake low, ended 0.6 percent higher on the day but down 2.6 percent for the week.
Volume remained light, suggesting investors remain wary with the Nikkei failing to cross its 25-day moving average, currently at 8,656.83, for the fourth time in six weeks.
"Even though the Japanese market is up today, it's mostly just reacting to overseas developments, like relief that Europe's situation might be improving, so the overall market here can still be called sluggish," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"No one wants to take a big position ahead of the U.S. jobs report later in case there is a downside surprise, and the market is also in a 'wait and see' mode to see what happens with the European plan to recapitalise banks and steps to prevent Greece from defaulting."
New claims for U.S. unemployment benefits rose by slightly less than expected last week, hinting at an improved labour market a day before the closely watched non-farm payrolls report.
The European Union said it would present a plan for a coordinated recapitalisation of banks by member states, and the European Central Bank said it was ready to buy bonds to provide longer-term cheap money for European lenders in need of funding. .
Bank shares tracked their U.S. counterparts higher on hopes for the European plan, with Mitsubishi UFJ Financial Group and Sumitomo Financial Group both ending 0.6 percent higher.
BETTING ON THE BOUNCE
An institutional trader at a U.S. brokerage in Hong Kong said clients were buying into conglomerates and financials while some hedge funds were becoming interested in stocks such as Orix Corp , popular plays in rising markets.
Orix, a leasing firm, rose 6.0 percent in its biggest single-day move since March 22.
The most heavily traded share by turnover was Softbank which closed up 6.5 percent at 2,456 yen, marking its biggest single-day gain since March 16 after it confirmed it would charge a lower monthly fee for Apple Inc's iPhone 4S than rival KDDI Corp .
Softbank lost its lucrative status as the sole provider of the iPhone in Japan this week.
Sony Corp , bucking the broader positive trend in the market, dropped 3.7 percent to 1,415 yen, after Nomura Holdings Inc. cut the consumer electronics maker's rating to 'neutral' from 'buy'. Sony shares hit a 25-year low this week.
Sony was also pressured by a report that the company is close to buying Telefon AB LM Ericsson's stake in their 50:50 mobile phone joint venture, as investors worried about how the company would finance such a deal as well as the future of the handset business.
Overall volume on the Tokyo Stock Exchange's main board was relatively light ahead of a Japanese public holiday on Monday, with 1.6 billion shares changing hands, similar to Thursday's level. Market breadth turned positive with about 16 shares rising for every 10 that fell.
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