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Topix Extends Two-Week Gain as Investors Weigh Earnings

July 28 (Bloomberg) -- Japan’s Topix index rose, extending a two-week gain, as investors weighed earnings at the start of the busiest two weeks of reporting season.

Resona Holdings Inc. jumped 5.4 percent after the lender said it would repay public funds by buying back preferred shares. NTT Docomo Inc. climbed 1.6 percent as the wireless operator’s shares were upgraded by Nomura Holdings Inc. after it reported financial results on July 25. Hitachi Chemical Co. posted its biggest advance in more than three years after quarterly profit beat estimates and the company announced job cuts. Tokyo Electron Ltd. sank 2.7 percent amid concern its merger with Applied Materials Inc. is stalling.

The Topix increased 0.4 percent to 1,286.07 at the close in Tokyo, with about five shares climbing for every three that fell. The measure posted a 1.4 percent advance last week after a 0.7 percent gain the previous period. The Nikkei 225 Stock Average added 0.5 percent today to 15,529.40.

“Japanese shares are a little cheap, which means they react a lot to good news,” said Koichi Kurose, Tokyo-based chief market strategist at Resona Bank Ltd. “ There are good and bad earnings, and shares are reacting accordingly.”

The Topix surged 14 percent from this year’s low on April 14 amid signs Japan is weathering a sales-tax increase from that month and speculation the nation’s $1.2 trillion pension fund will buy more domestic shares. The gauge traded at 1.3 times book value today, compared with 2.7 for the S&P 500 and 1.9 for the Stoxx Europe 600 Index on July 25.

GPIF Buying

“There are expectations the Government Pension Investment Fund will start switching its asset allocations, and that’s supportive in terms of the supply and demand balance,” said Shoji Hirakawa, chief equity strategist at Okasan Securities Co. in Tokyo.

The Standard & Poor’s 500 Index fell 0.5 percent on July 25 as earnings at Amazon.com Inc and Visa Inc. missed estimates and durable-goods data fueled concern corporate investment remains stop-and-go.

Goldman Sachs Group Inc. said equities are at risk of a temporary selloff, citing rising bond yields and high valuations for lowering its rating on stocks.

More than 1,300 of the 1,809 companies on the Topix are scheduled to report earnings in the next two weeks. Of the 43 such businesses that posted earnings since July 1 and for which Bloomberg has estimates, 53 percent beat analysts’ projections for profit, according to data compiled by Bloomberg.

Resona Buyback

Resona gained 5.4 percent to 609 yen, the second-most on the Nikkei 225. The lender said it will buy back and cancel 235 billion yen of preferred shares as part of a plan to repay a government bailout in 2003.

NTT Docomo climbed 1.6 percent to 1,844.5 yen. Nomura increased its investment rating on the stock to buy from neutral, and boosted its share-price target to 2,080 yen from 1,650 yen. HSBC Holdings Plc also upgraded the shares to overweight from neutral, while lifting its target price to 2,460 yen from 1,720 yen.

The mobile carrier’s earnings are “increasingly likely” to recover from the next fiscal year, and “substantial buybacks” are also likely, Nomura analyst Daisaku Masuno wrote in a report. NTT Docomo reported a 14 percent decline in profit on July 25.

Hitachi Chemical jumped 9.5 percent to 1,860 yen, the most since March 2011. First-quarter profit was 6.5 billion yen, the company said on July 25, beating the 5.1 billion yen projection from analysts surveyed by Bloomberg. Hitachi Chemical also said it will cut about 1,000 jobs through buyouts, and raised its half-year net-income forecast to 12 billion yen from 11 billion yen.

Tokyo Electron sank 2.7 percent to 6,613 yen, the biggest drop on the Nikkei 225. A merger filing for the chip-equipment maker and Applied Materials to China’s Ministry of Commerce was withdrawn, according to an article by DealReporter. The merger received strong opposition from China’s Ministry of Industry and Information Technology, the same publication said last week.

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

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net Tom Redmond, Jim Powell

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