Aug. 30 (Bloomberg) -- Japanese stocks rebounded from two days of declines after U.S. shares rallied on speculation earnings at technology companies will rise and on expectations the Federal Reserve will cut interest rates next month.

The Topix index lost 1.9 percent in the last two sessions on concern the subprime mortgage crisis is spreading throughout the U.S. economy, damping consumer spending and profits for financial companies.

Exporters including Nintendo Co. climbed after the yen weakened against the dollar and had its steepest decline against the euro since 2001. Mitsubishi Corp. climbed 3.7 percent, leading gains by oil-related shares after crude climbed to the highest in more than three weeks.

The U.S. Standard & Poor's 500 Index jumped 2.2 percent after Seagate Technology boosted its profit forecast.

``Despite the current housing problem, the real economies of the U.S., Europe and Japan are basically unchanged,'' said Masaki Iso, who oversees about $7.3 billion as head of Japanese equities at Yasuda Asset Management Co. in Tokyo. ``Japanese earnings are very vulnerable to changes in the currency,'' which is why investors bought exporter shares in response to the weaker yen today.

The Nikkei 225 Stock Average rose 140.99, or 0.9 percent, to 16,153.82 at the close of trading in Tokyo. The broader Topix advanced 10.68, or 0.7 percent, to 1,568.23.

Nintendo, maker of the top-selling Wii game console, jumped 1,300 yen, or 2.5 percent, to 53,300 in Osaka. Isuzu Motors Ltd., Japan's third-biggest maker of commercial vehicles, climbed 14 yen, or 2.3 percent, to 612. Sony Corp., the world's second- biggest consumer electronics maker, advanced 60 yen, or 1.2 percent, to 5,290.

Seagate Raises Forecast

Seagate, the world's largest maker of hard-disk drives, boosted its first-quarter forecast to at least 57 cents per share, 63 percent higher than the company's previous forecast. Analysts said demand for mobile computing devices is driving growth.

Minebea Co. added 12 yen, or 1.9 percent, to 662 and Nidec Corp. advanced 310 yen, or 4 percent, to 7,980. Both companies make motors for hard disk drives.

The U.S. gross domestic product figure due later today may show the world's biggest economy expanded at a 4.1 percent annual rate in the second quarter, compared with a 3.4 percent pace in the previous three months, according to a Bloomberg News survey. Personal spending increased 0.3 percent last month, three times the gain in June, the Commerce Department may say tomorrow.

Weaker Yen

Elsewhere, Fed funds futures contracts yesterday showed traders see a 44 percent chance the Fed will lower its target for overnight bank lending to 4.75 percent from 5.25 percent at its next meeting on Sept. 18, up from 36 percent odds a day earlier.

The Fed is ``closely monitoring'' markets and is ready to ``act as needed,'' Chairman Ben S. Bernanke wrote in an Aug. 27 letter sent to Senator Charles Schumer, a New York Democrat.

The yen weakened 1.7 percent against the dollar to 116.18 in New York yesterday, the biggest fall since January 2005. Versus the euro, the yen slumped 2.3 percent to 158.93, its steepest decline since January 2001. Japan's currency recently changed hands at 115.32 to the dollar and 157.48 versus the euro.

A weaker yen increases the value of Japanese exporters' dollar-denominated sales when converted back into local currency.

Not Attractive?

Mitsubishi Corp., Japan's largest trading company, which generates the second-biggest proportion of its sales from selling crude and industrial fuel, rose 110 yen, or 3.7 percent, to 3,080. Nippon Oil Corp., Japan's largest petroleum refiner, jumped 39 yen, or 4.3 percent, to 937.

Crude for October rose 2.5 percent to $73.51 a barrel yesterday in New York, the highest since Aug. 3. It was recently at $73.55.

Some store-chain operators dropped after July retail sales slumped 2.2 percent, the biggest drop in 17 months. Economists had expected a 0.8 percent decline.

Fast Retailing Co., the operator of Japan's Uniqlo casual- clothing store chain, lost 210 yen, or 3.1 percent, to 6,670. Mitsukoshi Ltd., which has agreed to merge with Isetan Co. to create Japan's largest department store operator, dropped 13 yen, or 2.4 percent, to 521.

``Japan's domestic-related sectors don't look very attractive because we are still not seeing a recovery,'' said Yasuda's Iso.

Indexes Lose Ground

The Nikkei 225 and Topix pared gains of as much as 1.6 percent and 1.4 percent respectively in the afternoon session. Market analysts including Yoshifumi Kikuchi of Yutaka Securities Co. said investors are becoming wary of the selling pressure that stocks are facing as funds face redemptions at the end of September.

Hedge fund investors generally have to give at least 45 days notice before withdrawals can be made from a fund at the end of any month. Market participants have forecast that turmoil that sent stocks tumbling in August probably led many investors to cancel their hedge fund investments, which will lead to selling by those fund managers until Sept. 30.

``The supply and demand balance for shares is crumbling, and that's something that investors have to be thinking about headed into the end of September,'' said Kikuchi, a director at Yutaka.

Share Dilution

The announcement today of the bankruptcy of a hedge fund run by Australia's Basis Capital Fund Management Ltd. also weighed on the market.

``It's unclear how much real effect the Australian fund's blow-up has for the market, but the psychological effect is big,'' said Hiroaki Kuramochi, managing director at Bear Stearns Japan Ltd. in Tokyo.

Fukuoka Financial Group Inc. slumped 16 yen, or 2.5 percent, to 631. The holding company established via the merger of Bank of Fukuoka and Kumamoto Family Bank said it will sell 79 million new shares, diluting the value of existing shareholders' stakes. UBS AG cut its price estimate on the stock 22 percent to 700 yen.

Mitsui & Co., Japan's second-largest trading company, gained 30 yen, or 1.4 percent, to 2,260. The company has won a $1.8 billion contract in partnership with South Korea's GS Engineering & Construction Corp. to build a diesel-oil processing complex in Egypt, the Nikkei reported.

TDK Corp., Japan's biggest maker of magnetic heads, surged 330 yen, or 3.6 percent, to 9,390. The company said yesterday it will acquire a controlling stake in the Thai unit of Magnecomp International Ltd. for $123 million to boost production of the components used in hard-disk drives.

Nikkei futures expiring in September climbed 0.9 percent to 16,200 in Osaka and added 0.9 percent to 16,190 in Singapore. About 1.52 billion shares worth 2.19 trillion yen ($18.9 billion) included in the Topix changed hands. Volume was the third-lowest for a full-day session this year. The value of shares traded was 26 percent lower than the 90-day average.

Fast Retailing Co. (9983 JT)
Fukuoka Financial Group Inc. (8354 JT)
Isuzu Motors Ltd. (7202 JT)
Minebea Co. (6479 JT)
Mitsubishi Corp. (8058 JT)
Mitsui & Co. (8031 JT)
Mitsukoshi Ltd. (2779 JT)
Nidec Corp. (6594 JO)
Nintendo Co. (7974 JO)
Nippon Oil Corp. (5001 JT)
Sony Corp. (6758 JT)
TDK Corp. (6762 JT)

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

Last Updated: August 30, 2007 02:42 EDT