Nikkei seen range-trading, futures and options settlement eyed

TOKYO, Dec 14 (Reuters) - Japan's Nikkei share average is expected to trade in a narrow range on Friday as investors adjust their positions before Sunday's election amid chart signals that the market is 'overbought' after jumping to an eight-month high. Market players said the Nikkei was likely to trade between 9,650 to 9,800 on Friday, adding that the early focus will be the settlement of quarterly Nikkei 225 futures and options at the market open. The closely watched settlement price, known in Japan as the special quotation, or "SQ", is calculated from the opening prices of the 225 shares in the Nikkei average on the second Friday of the month. "I expect that there won't be a big move, but we never know as we saw a big rise in the market the previous day," said Hiroichi Nishi, general manager at SMBC Nikko Securities, adding that some investors may unwind their positions before Sunday's election and the settlement price may be a resistance level for Friday. Nikkei futures in Chicago closed at 9,750, down from the close in Osaka of 9,760. The Nikkei rose 1.7 percent to 9,742.73, the highest closing level since April 5. Thursday's advance took the benchmark deeper into "overbought" territory, with its 14-day relative strength index at 76.22. Seventy or above is considered overbought and often signals a possible near-term pullback. Analysts said sentiment is still positive due a weaker yen, which boosts exporters' overseas earnings when repatriated. "Hopes for better earnings for exporters are attracting foreign investors," Nishi said. On Thursday the yen hit an 8-1/2-month low of 83.67 yen to the dollar as investors bet on bolder moves by the central bank after Sunday's election on Sunday. Shinzo Abe, the leader of the main opposition party which is expected to win the election, has called for the bank to adopt extreme policy action, including setting an inflation target of 2 percent and embarking on "unlimited easing". His comments have weakened the yen over the past month and helped boost stocks. The Nikkei has rallied 12.5 percent over the past month, taking its year-to-date gain to 15.2 percent, ahead of the performance of its peers in the United States and Europe. The U.S. S&P 500 has risen 12.9 percent so far this year and the pan-European STOXX Europe 600 has gained 14.3 percent. The broader Topix index was up 1.0 percent at 799.21 on Thursday.

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