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Japan's Nikkei Ends With Weekly Gain of 7%

Friday, 10 May 2013 | 3:10 AM ET

Asian investors enjoyed a strong risk-rally on Friday with both Japanese and Australian equities extending their bull run after the yen weakened through the key 100-mark against the U.S. dollar for the first time in four years.

The Nikkei 225 index jumped as much as 3 percent to trade at its highest levels since January 2008 and a rally in resources led Australian stocks to close at fresh five-year highs. The Shanghai Composite gained 0.6 percent.

Seoul's Kospi was the only laggard, slumping over 1 percent as the yen's slide weighed on domestic exporters.

Dollar at 101 Yen

Analysts said the rally in dollar-yen was partly fueled by Thursday's strong weekly U.S. jobless claims data and renewed concerns of the Federal Reserve scaling back its bond-buying program.

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"True, profits are more tightly linked to spending and output than to employment, but the slow but steady improvement in labor market conditions suggests that the slowdown that is evident in other data is, in fact, a soft patch and not a sudden stop," said Michael Gavin, head of emerging markets strategy at Barclays Capital in a report.

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Nikkei Surges

Robust earnings news added to the index's upward momentum with camera maker Nikon surging 14 percent after forecasting a better-than-expected operating profit and internet security software provider Trend Micro rising 17 percent after reporting a rise in first-quarter profit to nearly $48 million.

Positive sentiment was further heightened after capital flows data revealed that Japanese investors were net buyers of foreign bonds for the first time since the Bank of Japan unveiled a radical monetary easing program in April.

"We only have two weeks of data showing outflows from Japan and the numbers involved are small, but they do suggest that this could be the beginning of an outflow of funds from the supertanker that is the Japanese life insurance and pension funds," said Ray Attrill, co-head of foreign exchange strategy at National Australia Bank.

Australia Above 5,200

The benchmark S&P ASX 200 closed at its highest levels since May 2008 thanks to a rally in resource stocks. Karoon Gas surged 25 percent after raising the size estimate of its oil discovery off the coast of Brazil.

The index locked in a weekly gain of 1.5 percent following a week of strong rallies in the banking sector, upbeat economic data and a surprise interest rate by the central bank.

The Australian dollar rose to the $1.0076 handle per U.S dollar after initially plunging to an eleven-month low of $1.0095.

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Shanghai Flat

The benchmark index traded in positive territory after the Chinese central bank soothed investor worries of rising inflation by saying that it would increase policy flexibility to support the economy.

Major banks like Bank of China and ICBC were flat ahead of loan growth and money supply data for April. Reuters expects new loans to fall to $123 billion in April from March's figure of $158 billion.

Meanwhile, energy stocks were in focus after the government announced a price hike of retail gasoline prices. Asia's largest oil refiner Sinopec slipped as much as 1 percent.

Kospi Down 1.5%

As the yen accelerates its pace of decline, South Korean exporter stocks suffered with automakers leading losses. Hyundai Motor and Samsung Electronics fell over 2 percent each while Kia Motors tanked 3 percent.

A depreciating yen boosts the value of repatriated foreign income for Japanese exporters, thereby hurting the competitive edge of Seoul firms.

The benchmark index has given up all of the previous day's gains and is now down 2 percent since last week's one-month high of 1,984.

By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC

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