April 17 (Bloomberg) -- Japanese stocks rose, paring a weekly decline, on optimism a recovery in demand will boost earnings at steel mills and electronics makers.

Nippon Steel Corp., the world’s second-biggest maker of the alloy, surged 11 percent as brokerages said a reduction in price pressure will support earnings. Toshiba Corp., the most heavily short-sold Japanese stock, rose 4.4 percent after posting a smaller-than-forecast operating loss and benchmark chip prices surged. Nintendo Co. dived 6.6 percent after U.S. sales of its Wii game machine dropped for the first time in more than a year.

The Nikkei 225 Stock Average climbed 152.32, or 1.7 percent, to close at 8,907.58 in Tokyo. The broader Topix index advanced 13.53, or 1.6 percent, to 845.57, paring its drop this week to less than 0.1 percent. The Nikkei lost 0.6 percent on the week, its first weekly drop since the period ended March 6.

“The market’s resilience has given confidence to investors, and short-sellers are cautiously unwinding their positions, giving further support to this uptrend,” said Mitsushige Akino, who oversees the equivalent of $615 million at Ichiyoshi Investment Management Co.

The Nikkei 225 has rallied by more than a quarter from a 26-year low on March 10 as governments expanded stimulus plans to tackle the global recession, including a record spending proposal in Japan. The measure is still down 27 percent since Sept. 15 when the bankruptcy of Lehman Brothers Holdings Inc. accelerated the credit crisis.

Nikkei constituents traded at an average 0.98 times book value as of yesterday, according to gauge compiler Nikkei Inc., compared with 0.81 on March 10.

Steel Prices

Nippon Steel jumped 11 percent to 346 yen, while smaller rival JFE Holdings Inc. soared 11 percent to 2,985 yen, the steepest climbs for both in five months.

Japanese steelmakers agreed with Toyota Motor Corp. to cut steel prices by about 15,000 yen ($151) a metric ton for the year to March 2010, the Asahi newspaper said today. Nomura Holdings Inc. analyst Yuji Matsumoto wrote in a report he anticipated price cuts of about 30,000 yen, and Nippon Steel’s operating profit could expand by 100 billion yen due to the lower discount.

UBS AG analyst Atsushi Yamaguchi removed a “short-term sell” rating on Japan’s four biggest blast furnace steelmakers, including Nippon Steel and JFE, citing an expected recovery in output and price rebounds in China.

Toyota, the largest automaker globally, jumped 3 percent to 3,820 yen. Honda Motor Co., Japan’s No. 2, added 4.6 percent to 2,825 yen, and Nissan Motor Co. leapt 9.6 percent to 502 yen.

DRAM Prices

Toshiba, Japan’s largest chipmaker, climbed 4.4 percent to 332 yen. The company’s operating loss, or sales minus the cost of goods sold and administrative expenses, was 11 percent smaller than the company’s previous projection, Toshiba said in preliminary results today.

At least 182 million Toshiba shares, or 5.6 percent of the total outstanding, are short-sold, according to data compiled by Bloomberg from exchange filings.

Toshiba also gained after prices of benchmark dynamic random access memory, or DRAM, chips climbed 7.6 percent yesterday to the highest since Oct. 14, according to Dramexchange Technology Inc., operator of Asia’s biggest spot market for semiconductors. Elpida Memory Inc. surged by its 10 percent limit to 1,076 yen.

Sony Corp., maker of the Vaio personal computer, added 5.9 percent to 2,590 yen, the highest close since Oct. 21. Sharp Corp., Japan’s top maker of liquid-crystal display televisions, surged 9 percent to 981 yen. Electronics makers were the biggest contributors to the Topix’s advance.

The U.S. Labor Department said yesterday new jobless claims decreased in the week ended April 11 to the fewest since January, while economists had expected a gain.

Pessimists Warned

“This is what I want to tell investors now: Prepare for a sharp increase in stock prices because the bottom is about to fall out from under the pessimists,” Ryoji Musha, chief investment adviser for Japanese equities at Deutsche Bank AG, wrote in a report today. “We are very likely to see a rebound that returns stock prices to the level we saw prior to the Lehman Brothers shock.”

Nintendo dived 6.6 percent to 26,180 yen in Osaka trading, making it the biggest drag on the Topix. U.S. sales of the company’s Wii video-game machine dropped in March for the first time since January 2008, according to researcher NPD Group Inc. Microsoft Corp.’s Xbox 360 players posted a 26 percent gain.

“High valuations will weigh on the market once businesses start releasing their fiscal 2009 forecasts,” said Ichiyoshi’s Akino. “With the price-book ratio at around 1, there isn’t a reason to buy from a valuations standpoint.”

Nikkei futures expiring in June jumped 2.2 percent to 8,940 in Osaka and climbed 1.9 percent to 8,935 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

Last Updated: April 17, 2009 03:42 EDT