Nov. 22 (Bloomberg) -- Japan's Nikkei 225 Stock Average climbed after investors judged declines that suggest a bear market to be out of step with companies' profit outlook.

Shin-Etsu Chemical Co., which slumped to the lowest in more than a year yesterday, paced advances. The Topix fell 21 percent to yesterday's close since a peak in February, signaling Japan is the first among the world's 10 biggest markets technically to enter a bear market.

``Valuations are so low now that there's not much hope for making any money if you sell into this market,'' said Hiromichi Tsuyukubo, who helps look after about $800 million at Myojo Asset Management Japan Co. in Tokyo. ``It seems like investors with a long term perspective are taking the recent weakness as a chance to increase their holdings.''

The Nikkei rose 51.11, or 0.3 percent, to 14,888.77 in Tokyo today, reversing a drop of as much as 1.1 percent. The Topix index slipped 1.34, or 0.1 percent, to 1,437.38, paring a decline of as much as 1.5 percent.

For the week the Nikkei lost 1.8 percent and the Topix fell 2.3 percent. Both benchmarks dropped for a third week. Japan's market will be closed tomorrow for a holiday.

Automakers such as Honda Motor Co. retreated after a report showed home prices dropped in a third of U.S. cities, heightening concern the housing slump will slow consumer spending in the world's biggest economy.

Shin-Etsu, the world's largest maker of silicon wafers, jumped 200 yen, or 3.3 percent, to 6,350, breaking a five-day, 10 percent decline. KDDI Corp., Japan's second-largest mobile- phone operator, rose 6,000 yen, or 0.8 percent, to 761,000. Shin-Etsu slumped to a level not seen since June last year yesterday, while KDDI dropped to the lowest since November 2006.

Relative Strength

The Nikkei's 14-day relative strength index, a moving average based on whether shares rose or fell, was at 29.35 yesterday. An index level around 30 indicates to some technical analysts that the gauge is poised to climb.

The Topix fell 21 percent to yesterday's close since Feb. 26. The benchmark has lost 11 percent this month alone on concern that slower growth in the U.S. and a strengthening yen will reduce profits for Japan's export-dependent economy. A bear market is widely defined as a decline of 20 percent or more in a 12-month period.

Additionally, Japanese stocks were valued at 15.4 times estimated earnings, Goldman, Sachs & Co. wrote in a note last week, the lowest in 33 years.

Myojo's Tsuyukubo said the growth outlook for Japan remains intact as the economy now exports more to rapidly expanding Asian countries than it does to the U.S. Japan sells about a fifth of its export goods to the U.S., while almost half are sent to Asia.

U.S. Economy

Honda, which had 55 percent of its sales in North America last year, lost 50 yen, or 1.4 percent, to 3,570. Toyota Motor Corp., second in U.S. auto sales this year, slipped 70 yen, or 1.2 percent, to 5,870, the lowest since July 2006. Daikin Industries Ltd., the biggest Japanese maker of air conditioners, plunged 240 yen, or 4.2 percent, to 5,420.

Home prices fell in one third of U.S. metropolitan areas last quarter, the National Association of Realtors said yesterday. Meanwhile, the Conference Board's index of leading economic indicators fell a greater-than-forecast 0.5 percent in October, signaling the U.S. economy may continue to slow in 2008.

A measure of shipping companies included in the Topix lost 2.2 percent, the third-worst decline among the broad gauge's 33 industry groups. The Baltic Dry Index, an overall gauge of commodity shipping costs, fell for a sixth day yesterday, the longest losing streak since June.

Banks Gain

Mitsui O.S.K. Lines Ltd., the nation's second-largest shipowner, slid 44 yen, or 2.8 percent, to 1,549. Kawasaki Kisen Kaisha Ltd., the third biggest, slipped 18 yen, or 1.4 percent, to 1,244.

Banks advanced on speculation there are no new reasons for investors to sell after lenders reported earnings and that the shares are now attractive.

A measure of banks included in the Topix lost 24 percent since the beginning of August to yesterday's close as defaults on U.S. subprime mortgages roiled global stock and credit markets. The benchmark fell 16 percent in the period.

Sumitomo Mitsui Financial Group Inc., the third largest publicly traded lender, jumped 17,00 yen, or 2.1 percent, to 813,000. Mitsubishi UFJ Financial Group Inc., which announced earnings yesterday, the last of Japan's large banks to do so, rose 8 yen, or 0.9 percent, to 928.

Banks Still Cheap?

Sumitomo had a charge of 32 billion yen ($294 million) on U.S. subprime-linked investments last quarter, while Mitsubishi UFJ had a writedown of 23 billion for them. The banks also reported lower profits last quarter because of losses at consumer lender and credit card affiliates. Wall Street firms have announced combined losses of over $50 billion on subprime investments, dwarfing writedowns in Japan.

Even if investors assume the worst-case scenario will occur in terms of losses at non-bank affiliates, banks shares are still cheap, Hironari Nozaki, an analyst at Nikko Citigroup Ltd., wrote in a note to clients released today.

Nikkei futures expiring in December fell 0.1 percent to 14,800 in Osaka and were little changed at 14,780 in Singapore.

Daikin Industries Ltd. (6367 JT)
Honda Motor Co. (7267 JT)
Kawasaki Kisen Kaisha Ltd. (9107 JT)
KDDI Corp. (9433 JT)
Mitsubishi UFJ Financial Group Inc. (8306 JT)
Mitsui O.S.K. Lines Ltd. (9104 JT)
Shin-Etsu Chemical Co. (4063 JT)
Sumitomo Mitsui Financial Group Inc. (8316 JT)
Toyota Motor Corp. (7203 JT)

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

Last Updated: November 22, 2007 03:58 EST