July 28 (Bloomberg) -- Resona Bank Ltd., a unit of Japan’s fourth-largest banking group, plans to reduce holdings of government debt and buy more equities for pension assets it manages on expectations of a global recovery.

“The normalization of financial markets is nearly over and we are likely to see a gradual recovery from now on,” chief strategist Koichi Kurose, based in Tokyo, said in an interview with Bloomberg News. “Given this outlook, we will be ‘overweight’ stocks and ‘underweight’ bonds.”

The Nikkei 225 Stock Average may rise to as high as 11,500 in the year to March 2010 and the Standard & Poor’s 500 Index will reach 1,100, Kurose predicted. Resona held a total of 5.4 trillion yen ($57 billion) in assets under management at the end of March.

Japanese stocks rose for the past nine days, taking the Nikkei to its longest winning streak in more than 20 years. Equities gained and bonds fell this month as investors’ appetite for risk revived on signs the first global recession since World War II is easing.

The Nikkei rose as much as 0.3 percent to 10,116.89 today and was down 0.1 percent as of 2:36 p.m. in Tokyo. The S&P 500 added 0.3 percent to 982.18 yesterday.

Kurose expects a return of 23 percent from investments on Japanese stocks in the year to March 2010, and projects earnings of 19 percent from investments in overseas equities and a 0.9 percent return on Japanese government bonds.

Assuming the opposition Democratic Party of Japan wins national elections next month, demand-linked stocks such as child-care service companies will attract buying, he said.

India, China, Brazil

The DPJ, which leads Prime Minister Taro Aso’s Liberal Democratic Party in opinion polls ahead of Aug. 30 elections, has pledged to increase spending on child care and agricultural support programs if it wins office.

Stocks in India, China, Brazil and Indonesia look “promising, as emerging economies will benefit from rises in resource and commodity prices,” the Resona strategist said.

The bank takes a bearish stance on fixed-income securities at home and abroad.

“In particular, we want to avoid buying bonds of countries which may misjudge the timing for exiting from the credit easing,” Kurose said, without elaborating further. “Japan and the U.S. can’t exit the credit easing right now.”

The yield on Japan’s benchmark 10-year debt may rise to as high as 1.7 percent by the end of March 2010 and the U.S. 10- year yield may advance to 4.38 percent this year, Kurose said.

Investors who buy Japan’s 10-year bonds today and sell at the end of March next year may earn about 1 percent should Kurose’s forecast prove accurate, Bloomberg calculations show.

The yield on the 1.4 percent bond due in June 2019 rose half a basis point to 1.395 percent today. A basis point is 0.01 percentage point. The yield on the U.S. 3.125 percent security maturing in May 2019 was unchanged at 3.73 percent after yesterday touching 3.76 percent, the most since June 22.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.netYumi Ikeda in Tokyo at Ikeda4@bloomberg.net

Last Updated: July 28, 2009 01:53 EDT