TOKYO (Reuters) -
Japanese shares closed higher Friday, recovering from five-week closing lows the previous day, on views that recent price declines had partly factored in political instability that could follow this weekend's election in Japan.
The Nikkei ended up 101.30 points, or 0.9 percent, at 11,423.53, but on the week, it slid 2.5 percent.
The Nikkei had lost 574 points in a five-day losing streak after it hit a recent closing high July 1 in the wake of strong results from the Bank of Japan's "tankan" corporate survey.
The broader TOPIX index finished Friday up just over 1 percent at 1,146.92.
"What happened here in the past sessions was a sell-off on rumors. After the market factored in the possibility of a disastrous loss (by Prime Minister Junichiro Koizumi's ruling party in the upcoming elections), it gained some ground," said Norihiro Fujito, senior investment strategist at Mitsubishi Securities.
Gainers outnumbered losers 1,238 to 227 on the first section.
Trading was moderately active, with 1.084 billion shares changing hands, up from 958.94 million on Thursday.
The ruling coalition cannot be ousted from power as a result of the election for parliament's upper house as it holds a majority in the powerful lower chamber.
Still, investors have been jittery ahead of the July 11 elections that could determine the political fate of Prime Minister Junichiro Koizumi and his reform agenda.
Worries about the prospects for U.S. corporate earnings had also weighed on the Tokyo market after a series of profit warnings earlier this week from medium-sized software makers in addition to a weak sales forecast by U.S. Internet giant Yahoo Inc. (YHOO: Research, Estimates) .
Analysts also said Japanese pension funds and other institutional investors had scooped up a broad range of stocks Friday after the Nikkei average's steep decline had made them look undervalued given strong earnings prospects and solid domestic fundamentals.
The financial sector, Internet-related stocks and others that took a hit in the recent losing streak were the ones bouncing back the most Friday.
Election readings
Media surveys this week suggested Koizumi's Liberal Democratic Party (LDP) was in danger of falling short of its goal of winning 51 of the 121 seats being contested at the election.
The surveys sparked fears that a poor LDP performance could topple Koizumi, as it did in the upper house election in 1998 when Ryutaro Hashimoto was forced to resign as prime minister after the LDP won 44 seats.
That number is also the market's worst-case scenario for the LDP this time around.
But one fund manager said such fears have waned by now.
"The rebound today suggests the market now thinks it's quite unlikely that the LDP will fail to secure the 44 seats," said Naoyuki Torii, assistant general manager at Fukoku Capital Management.
"The election would not be a long-lasting factor. Looking back, the stock market made a quick turnaround after the 1998 election," he added.
Among gainers, Internet service provider Softbank Corp. jumped nearly 5 percent to ¥4,420 and Trend Micro Inc., Japan's biggest anti-virus software maker, rose 3.9 percent to ¥4,500.
Investors also bid up air conditioner and beverage makers after unusually hot weather this week stoked hopes for improved earnings, especially after a cool summer last year.
Temperatures in several cities in Japan this week marked record highs for this year of more than 98.6F.
Air conditioner maker Daikin Industries Ltd. rose 3 percent to ¥2,910 and tea and coffee drinks provider Asahi Soft Drinks Co. Ltd. jumped 5.9 percent to ¥1,010.
In the banking sector, Mizuho Financial Group Inc. climbed 4.1 percent to ¥453,000, snapping a six-day losing streak.
UFJ Holdings Inc rallied 7.2 percent to ¥462,000, helped by a newspaper report that Japan's fourth-biggest banking group would strike a ¥100 billion ($919 million) deal to sell its consumer financing arm, Aplus Co., to GE Capital early next week.
Aplus surged 13.1 percent to ¥276.
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