Nikkei set to trade in range, easing hopes support mood

TOKYO, Jan 8 (Reuters) - Japan's Nikkei share average is set to trade in range on Tuesday as investors remain cautious of the overbought market while yen's weakness has paused, but hopes for aggressive monetary easing support investor sentiment. Market players said the Nikkei was likely to trade between 10,500 to 10,700 on Tuesday, after ending down 0.8 percent to 10,599.01 on Monday. Nikkei futures in Chicago closed at 10,620, the same level Nikkei futures closed in Osaka. Analysts said that investors are expected to stay on the sidelines amid signs that the market is overbought, and there may be some profit-taking on the recent gains of exporters now that the weakening of the yen appears to have paused for the time being. "Market sentiment is still positive on the back of hopes for further easing, but buying may pause on bellwether shares while small caps may attract buying," said Hiroichi Nishi, general manager, SMBC Nikko Securities, adding that domestic retail investors have belatedly come back and have started buying small caps. The dollar traded at 87.42 yen, retreating from a 2-1/2 year high of 88.48 yen marked on Friday as robust appreciation over the past month had investors opting to book profits despite forecasts of further Bank of Japan stimulus later in the month. The Nikkei has risen about 22 percent since mid-November when Prime Minister Abe started calling for aggressive easing, taking the index deeper into overbought territory. Its 14-day relative strength index is at 78.09, far above 70 which is considered overbought and often indicates an imminent adjustment. The broader Topix dropped 0.8 percent on Monday.

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