Asian Markets Update: Japanese Stocks Rise Despite Moody's Warning

But the yen and bonds fall.
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TOKYO -- Mutual funds and retail investors shrugged off threatening news from

Moody's Investors Service

on Thursday, as stocks rose despite a possible downgrade of Japan's sovereign debt rating in the months to come.

Japanese government bonds and the yen withered slightly, but equity traders said the weaker yen would enable exporters such as

Sony

(SNE) - Get Report

to sell more products at a cheaper price overseas, thus boosting profits and share prices.

Although the immediate reaction to the Moody's news was muted, traders warned that the threat remained of a triple downfall in Japan, in which investors would drive down the currency, stocks and bonds.

The

Nikkei 225

stock index rose 192.22, or 1.0%, to 19,791.40 while the

Topix

index, comprised of shares listed on the

Tokyo Stock Exchange's

first section, climbed 25.99, or 1.5%, to 1717.11. The

Jasdaq

small-cap index jumped 2.89, or 2.4%, to 122.35, while Nikkei

over-the-counter

shares rose 74.24, or 3.0%, to 2562.51.

Moody's placed Japan's Aa1 long-term sovereign debt rating on review for a possible downgrade, citing the gargantuan size of public sector debt (which could climb to 130% of gross domestic product next year), as the main reason for its action.

"We all knew this was coming," said Yasunari Ueno, chief market economist at

Fuji Securities

. "With fourth quarter gross domestic product estimated to go down more than 1%, along with the size of government spending, it's no surprise."

The dollar rose to 110.15 yen after the news of the possible downgrade hit the wires midday, bringing forth a new currency trading range of 110.00 to 112.00 yen for the short-term, currency dealers said. The yield on the benchmark 10-year Japanese government bond stood at 1.850%, up 0.055 from the previous close.

In the long-term many market participants, including Ueno, said they feared a sudden rise in interest rates, which could increase corporate funding costs. A rise in rates also could cause more losses at pension funds, which invest the bulk of their funds in bonds. If savers believe they might not receive their benefits, Japan could be in for another wave of cash stockpiling. That could further delay a return to consumer spending, which has sagged for nearly a decade, and would make an economic recovery more difficult, Ueno said.

With

U.S. Federal Reserve

Chairman

Alan Greenspan's

testimony before Congress coming up, traders said the market was in a wait-and-see mode. If U.S. markets sink on Thursday, and foreign investors take the Moody's news less well than Japanese investors, a triple decline in stocks, bonds and the yen could be in store. Key resistance for the Nikkei 225 index was pegged at 18,500, because mutual funds are expected to buy shares on dips.

Despite the threat of weaker stocks, the market rose Thursday in choppy trading. Sony,

Hitachi

(HIT)

,

Cannon

and selected pharmaceutical shares were the main targets of buyers.

Sony climbed 1,000, or 3.6%, to 28,900 on news that it was in talks with America's

Intel

(INTC) - Get Report

to make the next-generation home appliance network. Cannon rose 430, or 9.7%, to 4880, while Hitachi climbed 21, or 2.0%, to 1579, as both shares are considered cheap tech plays.

Pharmaceutical shares were mostly higher, as Germany's

Boehringer Ingelheim

said it successfully acquired 35.9% of drug maker

SS Pharmaceutical

, giving the former veto power over management. Boehringer is the second foreign company to succeed with an unsolicited bid for a Japanese firm, following

Cable & Wireless Communications'

(CWZ)

bid for

IDC

, a telecom firm, last year. SSP rose 200, or 17.9%, to 1318, while

Eisai

(ESALY)

climbed 215, or 10.2%, to 2330.

Hong Kong's

Hang Seng

index pulled back 62.16 to 16981.23. Internet investor

Pacific Century Cyberworks

rose 0.55, or 2.2%, to 25.90 on rumors that it struck a deal to buy out

Cable & Wireless HKT

, which is currently in merger talks with

Singapore Telecommunications

. The rumor was later denied, but C&W HKT rose 1.60, or 6.7%, to 25.50.

Utility stocks were hot, with

HK Electric

climbing 0.90, or 3.8%, to 24.40, while

CLP Holdings

(CLPHY)

rose 0.80, or 2.55%, to 32.90.

Korea's

Kospi

index rose 18.02, or 2.1%, to 897.52.