June 26 (Bloomberg) -- Japanese stocks rose, extending a weekly gain, as forecasts by Bridgestone Corp. and Nippon Electric Glass Co. lifted optimism earnings are recovering.

Bridgestone, the world’s largest tiremaker, leapt 8.5 percent after narrowing its first-half loss forecast. Nippon Electric, the world’s No. 3 maker of glass for flat-panel televisions, gained 6.3 percent after increasing its profit target. Nippon Building Fund Inc. jumped 3.6 percent after Morgan Stanley raised its view on the nation’s real estate investment trusts to “attractive.” Mitsui Fudosan Co., Japan’s biggest property developer, added 3 percent.

“Bridgestone’s forecast gave us evidence that company earnings will start to rebound,” said Naoki Fujiwara, who oversees the equivalent of $3.7 billion at Shinkin Asset Management Co. “Investors still believe the global economy will start to recover later this year and this confidence is leading to resilience in the market.”

The Nikkei 225 Stock Average gained 81.31, or 0.8 percent, to close at 9,877.39 in Tokyo. The broader Topix index rose 7.03, or 0.8 percent, to 926.80, with more than three stocks rising for each that fell. Both gauges climbed 0.9 percent in the past five days, bouncing back from declines last week.

The number of stocks traded in Tokyo dropped to the lowest level in three months. The Nikkei, which slumped 3.5 percent last week, has soared 40 percent since reaching a quarter- century low in March. Credit Suisse AG lifted the nation’s stocks to “overweight” for the first time in two years today, saying Japan’s manufacturing base will benefit as global companies rebuild inventory.

Deflation Returns

Stocks rose even after a report by the statistics bureau that Japanese consumer prices fell at a record pace in May, adding to the risk that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession.

The 100-day moving average for the Nikkei is poised to surpass its average price for the prior 200 days, a so-called “golden cross” that signals a long-term rally, said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages about $13 billion.

Bridgestone jumped 8.5 percent to 1,520 yen. The company’s first-half operating loss will probably be 28 billion yen ($292 million), compared with the 40 billion-yen loss Bridgestone predicted earlier, owing to cost cuts.

‘Robust’ LCDs

Other tiremakers also rallied. Sumitomo Rubber Industries Ltd., No. 2, added 8 percent, while Yokohama Rubber Co. climbed 7.6 percent. A gauge of rubber makers posted the sharpest leap among the Topix’s 33 industry groups.

Nippon Electric leapt 6.3 percent to 1,054 yen. The company said yesterday operating profit will likely be 10 billion yen in the three months to June 30, twice its previous forecast. Demand for liquid-crystal display glass is expected to remain “robust,” the company said in a filing to the exchange. Bigger rival Asahi Glass Co. rose 2.6 percent.

Nippon Building Fund climbed 3.6 percent to 829,000 yen, and Japan Real Estate Investment Corp. added 4.7 percent to 780,000 yen. The Tokyo Stock Exchange REIT Index advanced 4.3 percent, the most since March 27.

Morgan Stanley lifted its view on Japan’s REITS from “in- line,” saying government aid should reduce their credit risk. Takumi Nemoto, a ruling Liberal Democratic Party lawmaker, said in an interview this month the government will set up a fund to support property investment trusts.

Mitsui Fudosan added 3 percent to 1,665 yen. Sumitomo Realty & Development Co., Japan’s third-biggest developer, rose 2 percent to 1,749 yen.

“Investors are betting Japan’s economy won’t turn out as bad as some fear,” said Takeshi Fukushima, who helps manage the equivalent of $28 trillion at Tokyo-based Meiji Dresdner Asset Management Co. “The earnings prospects for real estate companies aren’t as cloudy as in other industries.”

Nikkei futures expiring in September added 1.1 percent to 9,900 in Osaka and gained 1.4 percent to 9,910 in Singapore.

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

Last Updated: June 26, 2009 03:36 EDT