Asian Markets Update: Japanese Blue-Chips Rise Despite Ratings Worries

An upbeat Bank of Japan report offsets concerns of a Moody's downgrade, as technology stocks take another beating.
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TOKYO -- An upbeat economic report from the

Bank of Japan

and continued buying of blue-chips by cash-rich fund managers sent the

Nikkei 225

index to its highest close since December 1996.

But amid the market cheer, Internet shares continued to take a beating, and there were rampant market rumors about the possibility of another downgrade in Japan's sovereign debt rating, which some traders said has capped the enthusiasm of foreign investors for the short term.

The key Nikkei 225 index rose 310.69 points, or 1.5%, to 20,833.21, while the

Topix

index, which includes all shares listed on the

Tokyo Stock Exchange's

first section, climbed 5.25 to 1706.34. The

Jasdaq

small-cap index fell 2.80, or 2.8%, to 98.07, while the Nikkei over-the-counter index shed 46.03, or 2.2%, to 2057.74.

The central bank said the Japanese economy was recovering in certain areas and said it detected an upturn in corporate capital investment.

Kawasaki Steel

(KSKSY)

, rose 12 yen, or 6.6%, to 194 and

Honda Motor

(HMC) - Get Report

, climbed 270, or 6.4%, to 4500.

Nasdaq's

gravitational pull hurt many of the Japanese electronic component makers and pure Internet plays, with

Sony

(SNE) - Get Report

falling 140, or 1.0%, to 14,110,

Fujitsu

(FJTSY)

losing 90, or 2.7%, to 3230 and

Softbank

shedding 3700, or 5.0%, to 71,300.

Even though excitement still runs high for Japanese equities, there are some huge fundamental problems with Japan's economy, some traders said, including the ballooning national debt. At 130% of

GDP

, the size of the debt is limiting the government's scope for continued public works programs to stimulate the economy -- hence the need for economic reform and spending by companies and households. The market was concerned that

Moody's Investors Service

may slash Japan's Aa1 sovereign debt rating, following its move in February in which it placed Japan's rating on review for a possible downgrade. Traders think the actual downgrade may come in May.

"Foreign buying has definitely tapered off, and the Moody's talk doesn't help," said one equities desk head at an U.S. firm here. "But the buying is declining since everyone also has to concentrate on U.S. markets so much more now. The focus is the U.S., not Japan."

In currency dealings, the greenback edged lower against the yen to around 106.53.

Although Hong Kong's

Hang Seng

index rose a modest 89.43 points to 16,577.09, a realignment in the Asian telecom sector had the market humming. Shares in

Pacific Century CyberWorks

were suspended. Australia's top telephone company

Telstra

(TLS)

, up 1.6% before its shares were suspended, will reportedly buy $1.5 billion in PCCW notes, convertible into shares, and invest another $1.5 billion into

Cable & Wireless HKT

(HKT)

once PCCW takes over that company.

Telstra's move rubs more salt into the wounds of

Singapore Telecommunications

, which was recently outmaneuvered by PCCW in its attempt to enter the Hong Kong phone market, after PCCW overtook SingTel's earlier bid to buy HKT. Experts are predicting SingTel will start announcing some joint ventures and buyouts soon, lest the firm lose share in the booming Asian mobile phone market.

Index heavyweight

China Telecom

(CHL) - Get Report

fell HK$1.25, or 2.0%, to 63.00 ahead of its earnings release Thursday.