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Japan Shares Advance as Oil Stocks Surge, Utilities Drop

Aug. 29 (Bloomberg) -- Japanese shares rose, with the Topix index advancing from a two-month low, as oil stocks jumped after crude climbed yesterday amid Syria tensions, outweighing a fall in utilities on concern higher fuel prices will damp earnings.

A Topix subgroup tracking energy explorers gained 4.9 percent, more than twice the next-best performing sector, after oil traded at a two-year high yesterday. Kansai Electric Power Co. slumped 5.6 percent as electricity producers posted the biggest drop on the Topix. Nintendo Co. lost 1.3 percent after the video-game maker cut the price of its Wii U console. Komatsu Ltd. slid 0.4 percent after rival Joy Global Inc., the largest maker of underground mining equipment, projected a decline in sales amid slowing demand for metals and coal.

The Topix climbed 0.2 percent to 1,116.51 at the close in Tokyo, after swinging for most of the day between a 0.3 percent gain and a 0.2 percent loss. The measure dropped to its lowest since June 27 yesterday. The Nikkei 225 Stock Average added 0.9 percent today to 13,459.71.

“Oil shares are climbing as the price of crude increases in line with mounting tensions in Syria,” said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co., which oversees about $33 billion. “And from that fundamental perspective, rising oil costs are negative for power producers, especially as Japan’s nuclear plants are mostly offline, so utilities’ reliance on oil and natural gas is very high.”

The Topix is headed for a 1.3 percent decline in August, its fourth consecutive monthly drop and the longest losing streak since November 2008. Japanese equities are still the best performers among developed markets this year.

Nikkei Outperforms

The Nikkei 225 outperformed the Topix today as Fast Retailing Co., Kyocera Corp. and Softbank Corp. rose 2.5 percent, 2.9 percent and 1.1 percent, respectively. The three companies make up about 18 percent of the Nikkei 225, compared to about 3 percent of the broader equity gauge.

Futures on the Standard & Poor’s 500 Index climbed 0.2 percent. The gauge yesterday rose 0.3 percent, rebounding from an eight-week low, as energy shares rallied and investors watched developments on Syria.

The U.S. and U.K. said yesterday they are prepared to take military action against Syria without authorization from the United Nations Security Council, after Russia objected to a UN resolution offered by Britain on action to protect civilians.

Concern the U.S. will lead a military action against Syria caused a rout in Asian equities yesterday. The yen advanced the most in 2 1/2 months on Aug. 27 as investors reduced risk in favor of haven assets.

“With the recent correction and the growing feeling stocks are undervalued, some investors will be buying back shares,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “But increasing concerns and complications mean investors may take a wait-and-see approach and buying will be limited.”

Explorers Climb

West Texas Intermediate oil climbed 1 percent to $110.10 a barrel yesterday, the highest close since May 2011, after gaining 2.9 percent on Aug. 27. It pared recent gains today, falling 1.1 percent as of 3:55 p.m. in Tokyo.

A gauge tracking energy explorers jumped 4.9 percent today, the most among the 33 Topix industry groups and its biggest increase since January 29. Inpex Corp., an oil company that accounts for more than 80 percent of the subgroup, climbed 5.2 percent for the second-biggest advance on the Nikkei 225.

The Topix Electric Power & Gas Index dropped the most on the broader equity measure, falling 2.2 percent to its lowest since June 6. Kansai Electric Power was the worst-performing stock on the Nikkei 225, dropping 5.6 percent to 1,084 yen.

Nintendo Drops

Nintendo declined 1.3 percent to 11,840 yen. The company will cut the price of its Wii U video-game console by $50 from $350 and unveiled a new handheld player in a bid to boost sales before Sony Corp. and Microsoft Corp. release competing devices.

Komatsu, which manufactures excavators and bulldozers, slid 0.4 percent to 2,170 yen. The stock fell after Joy Global, which makes underground and surface mining equipment, said “the current outlook is unlikely to support annual revenue above $4 billion” in its earnings statement. That trails the $4.59 billion average of 19 analysts’ estimates compiled by Bloomberg for fiscal 2014.

Retail Sales

Trade Ministry figures showed Japan’s retail sales in July fell 1.8 percent from the previous month, a wider drop than the 1 percent median estimate of economists surveyed by Bloomberg. Separately, foreigners sold a net 89.5 billion yen in Japanese stocks last week, government data showed.

The Topix traded at 1.16 times book value today, compared with 2.40 for the S&P 500 and 1.68 for the Stoxx Europe 600 Index yesterday. The Japanese gauge’s 30-day historic volatility was at 26.64 today, compared with its five-year median of 19.42.

“Japanese shares are quite cheap and it’s a good time to buy,” said Mizuho’s Aoki. “A lot of the long-only foreign investors may use this as a chance to narrow their underweight positions and increase their holdings of Japanese shares.”

To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net

To contact the editor responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net

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