Nikkei rises 1.6 pct to 8 1/2-month high on LDP landslide win
* Nikkei rises 1.6 pct; Topix up 1.2 pct in active trade
* Exporters in demand as yen hits 20-month low vs dollar
* Power companies surge on nuclear-friendly LDP win
* Realtors, banks up on expectations of reflationary policy
TOKYO, Dec 17 (Reuters) - Japan's Nikkei average climbed 1.6 percent to an 8-1/2-month high on Monday, as the yen weakened after the conservative Liberal Democratic Party, which favours aggressive monetary easing, won Sunday's election by a landslide. The Nikkei rose 156.43 points to 9,893.99 by the midday break, while the yen hit a 20-month low of 84.48 yen to the dollar, boosting the appeal of exporters' shares. A weaker yen helps boost Japanese exporters' overseas earnings when repatriated and increases their competitiveness. Exporters finding higher ground included Honda Motor Co , Sony Corp, Daikin Industries Ltd and industrial robot maker Fanuc Corp, up between 1.1 and 5 percent. The landslide victory gives the LDP and its ally the New Komeito party a two-thirds majority needed to overrule parliament's upper house in most matters, allowing the new government a freer hand to implement its policy. "The Nikkei has a chance to reach 10,000 in the short-term. However, I am a little bit worried about the BOJ (Bank of Japan) meeting on the 20th (of December)," said Ryota Sakagami, chief strategist at SMBC Nikko Securities. He said if the central bank announced no additional monetary easing policy on Thursday investors were likely to take profits on the past month's rally. The benchmark Nikkei has risen 14.2 percent during that time, spurred by yen weakness after Shinzo Abe, the leader of the LDP, called for the BOJ to undertake "unlimited easing" and set an inflation target of 2 percent as well as big spending on public works to kick-start the ailing economy. The rally has taken the year-to-date gain for the Nikkei to 17 percent, ahead of a 12.4 percent rise in the U.S. S&P 500 and a 14.3 percent gain in the pan-European STOXX Europe 600 index. Monday's gain took the index further into "overbought" territory, with its 14-day relative strength index at 79.9, way above the 70-level which is deemed as overbought and often signals a possible near-term pull back. Power utilities surged in reaction to the LDP win, noting the party opposes a nuclear-free policy. Tokyo Electric Power Co , whose shares have been battered by the meltdown at its Fukushima nuclear plant after last year's earthquake, jumped 32.9 percent and Kansai Electric Power Co rallying 13.7 percent. Tokyo Electric Power was the second-most traded stock on the main board by turnover.
REFLATION PLAYS Shares of financial and property firms, which tend to benefit the most in a reflationary situation, also gained. The real estate sector gained 2.6 percent, while Nomura Holdings Inc, Japan's top brokerage, rose 3 percent and lender Mitsubishi UFJ Financial Group added 1.8 percent and was the fourth-most traded stock. Nomura Securities highlighted 10 stocks that would likely outperform under an LDP administration, including Sumitomo Osaka Cement Co Ltd, Taiheiyo Cement Corp, contractors Obayashi Corp and Kajima Corp, real estate firm Mitsui Fudosan Co Ltd, home builder Sekisui House Ltd and Mazda Motor Corp. "We estimate that global funds are still about 2 percentage point underweight Japanese equities. Given the election results, we see a high probability of foreign investors becoming substantial net purchasers of Japanese equities to reduce their risk of underexposure to Japan," it said in a note. "We now see a possibility of the equity market surpassing our end-March 2013 Nikkei average target of 10,250." The broader Topix index advanced 1.2 percent to 810.59 in active trade on Monday morning, with volume at 93 percent of its full daily average for the past 90 trading days.
Struggling TV maker Sharp Corp, the most-traded stock, surged 7.8 percent to extend this month's rally to 68.6 percent on short-covering after it said in early December that U.S. chipmaker Qualcomm Inc would invest $120 million. It is still down 56.9 percent this year, however. Short-selling interest in Sharp has fallen lately, although it still remains high, with 91.21 percent of stock available to be borrowed out on loan as of Dec. 13, down from 92.92 percent on Dec. 7, according to data provider Markit.