World Cup soothes Japan's pain

JAPANESE investors, buoyed by the country's 2-2 draw with Belgium in yesterday's World Cup clash, refused to be spooked Wednesday by yet more figures showing that large manufacturers were continuing to scale back their investment in plant and machinery.

Other Asian markets took their cue from Nasdaq's overnight rise of 1% and Australian investors reacted calmly as another increase in interest rates confirmed that the days of cheap money were fast fading.

The Nikkei 225 Average added 10.80 points to 11,663.87 as investors gained confidence in the outlook for exporting stocks following the central bank's action to stem the rise in the value of the yen on foreign exchange markets.

Buyers shrugged off prospects that Japan's recovery could be stalled by the continuing fall in capital expenditure, which dropped 16.8% in the first quarter compared with a year earlier. Although this was the biggest fall since the fourth quarter of 1998, analysts drew comfort from the fact that the pace of decline was not accelerating, raising hopes that the end of the freeze on investment was near.

Share prices were also steadied by a forecast from the Ministry of Finance that earnings, sales and employment were all set to improve later this year.

A revival in demand cannot come too soon for Fast Retailing, the Uniqlo casual clothes chain that saw sales in Japan plunge 44% year on year last month. The eighth straight fall in domestic sales today condemned the shares to a 10% slump.

Debt-ridden stores group Seiyu slid almost 5% on unconfirmed reports that US retailing giant Wal-Mart may not go though with its proposed joint venture in Japan, and is considering going it alone.

In Sydney the All Ordinaries held on to modest gains after the Reserve Bank jacked up rates by a quarter point to 4.75% as the country's galloping economy threatened to drag inflation above the bank's 3% upper target limit. The index gained 49.1 points to 3350.2. The economy grew 4.2% in the first quarter of the year while inflation has edged up to 2.9%.

While most banks were steady on the rate move, Macquarie Bank lost about 2% on news that it had linked with British United Provident Association to buy Axa Health from Axa Asia Pacific Holdings.

Hong Kong's Hang Seng index rose 89.8 points to 11,402.4 with most of the increase accounted for by China Mobile, which gained 0.6% after the mainland cellphone operator had its debt rating confirmed by Standard & Poor's.

South Korean joy at beating Poland 2-0 rubbed off on stocks, and the Kospi scored a 9.37-point gain to 815.70.

The direct winner was online lottery operator Lototo, which jumped 12% on expectations that local fans would be betting heavily on further progress by their home team.

Stronger microchip prices lifted semiconductor stocks in Taiwan, taking the Weighted Average up 81.01 points to 5608.81. Singapore's technology stocks were also in demand, and lifted the Straits Times index 11.0 points to 1658.8.

Thailand led other South-East Asian markets higher, with the SET index rising 4.51 points to 407.05.

The Composite index in Malaysia edged up 0.6 to 750.62. Jakarta's Composite rose 2.88 points to 521.82.