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Nikkei lifts off 3-week low on better-than-expected U.S. data

Monday, 1 Oct 2012 | 10:06 PM ET

* Softbank up 4 pct on eAccess purchase

* More firms cut forecasts, adding to growth concerns

* U.S. manufacturing data seen as positive

By Sophie Knight

TOKYO, Oct 2 (Reuters) - Japan's Nikkei share average inched up in early trade on Tuesday, buoyed by a surprisingly strong pick-up in U.S. manufacturing, while a softer yen lent support to export-driven stocks.

Softbank Corp rose 4.4 percent after the mobile operator said it would acquire smaller rival eAccess Ltd

in a $1.84 billion deal, stepping up a fight for market share with competitor KDDI Corp

.

Softbank will pay 52,000 yen ($670) for every eAccess share under a share swap, Softbank said late on Monday, a premium of more than three times eAccess's closing price on Friday of 15,070 yen.

eAccess was untraded with a glut of buy orders by mid-morning, while KDDI lost 2.5 percent.

The Nikkei inched up 23.2 points, or 0.3 percent to 8,819.28 after data showed the U.S. ISM index rose to 51.5 from 49.6 in August, beating expectations for a reading of 49.7, according to a Reuters poll.

However, the benchmark's gains were capped as investors remained cautious after a handful of companies undershot guidance or cut forecasts, reinforcing fears about slowing global growth.

"We're in wait-and-see mode ahead of earnings, but it doesn't look good," said Hirokazu Fujiki, manager of investment strategy at Okasan Securities. "A lot of companies are missing targets and cutting their outlooks, particularly those with a lot of exposure to overseas markets."

Shimamura Co Ltd

fell 2.4 percent after the clothing store chain reported a 3.9 percent drop in second-quarter earnings ended Aug. 20 compared with a year earlier, due to higher costs.

Alps Electric Co Ltd

slumped 12.2 percent to a three-year low after the electronic parts maker cut its operating profit forecast by 46 percent to 11.8 billion yen ($151 million) for the business year ending in March, citing higher material costs and a strong yen.

Alps Electric has fallen 31.6 percent this year, underperforming a 0.8 percent rise in the Topix.

Shipping company Mitsui O.S.K Lines Ltd

also

revised its forecast for the 6 months ending Sept. 30 to an operating loss of 3.5 billion yen ($44.8 million) from a previous forecast for a 1 billion yen profit, hurt by rising fuel costs and dwindling demand.

However, the stock rose 5 percent as investors had feared a worse performance. Mitsui's share price is down 36.9 percent on the year as of Tuesday morning.

"It's all about expectations," Fujiki said. "We are expecting bad news for exporters and cyclicals and quite strong performance from domestically oriented stocks, so unless the latter dazzle they're not going to gain."

Convenience store operators were a case in point, starting the session weak despite the Nikkei business daily reporting record profits for the half, with year-on-year increases of between 3 to 6 percent. Lawson Inc

and Familymart Co

slipped 1.7 and 2 percent respectively, while Seven & I Holdings inched up just 0.1 percent.

"The gains today are mostly short-covering as the fundamental concerns drag on - Japan's economic sentiment isn't that good, and its relationship with China is going through a rough patch," said Yoshihiro Ito, chief strategist at Okasan Online Securities.

Investors are concerned that corporate earnings will be hit by the closure of Japanese factories and stores in China due to anti-Japan sentiment triggered by a territorial dispute, a double whammy for firms already suffering from diminishing demand in China and elsewhere.

Concerns about a global slowdown have sent investors scurrying for cover with the "safe haven" yen, keeping the currency strong and eroding exporters' revenue garnered abroad once repatriated.

On Tuesday the yen softened slightly, prompting mild gains for exporters. Canon Inc put on 2.2 percent while Nissan Motor Co advanced 0.8 percent. The broader Topix rose 0.3 percent to 734.42.

The Nikkei lost 0.8 percent to 8,796.51 on Monday, falling to a three-week closing low on poor economic sentiment in Japan and Chinese manufacturing, and as firms cut their interim earnings forecast due to dwindling demand.

($1 = 78.0600 Japanese yen) (Editing by Richard Pullin)

((sophie.knight@thomsonreuters.com)(+81 3 6441 1833)(Reuters Messaging:)(sophie.knight.thomsonreuters.com@reuters.net))

Keywords: MARKETS JAPAN STOCKS/