Tokyo: The Nikkei share average jumped to a three-week high on Tuesday after Germany and France pledged to deliver a plan to protect banks by the end of month, easing fears that Greece's debt troubles could wreak havoc on the global financial system. Still, many market players doubt that Nikkei has much room for further gains in the near-term, given doubts that the euro zone policymakers will be able to form a united response to the debt crisis.
"Markets are rallying on hopes for policy, rather than an actual policy. There's still no guarantee there will be effective policy. The target for the Nikkei will be around 8,800 to 9,000 for the next few days," said Yutaka Miura, senior technical analyst at Mizuho Securities.
After a national holiday on Monday, the benchmark Nikkei rose 2.0 per cent to 8,776.16, having briefly risen to as high as 8,806.44, its highest since September 16.
It stood well above its 25-day moving average, now around 8,650, and which is normally considered a bullish sign.
Immediate resistance is seen at an area defined by two peaks last month, 8,864 on September 16 and 8,876 on September 8.
Some analysts think the rebound could extend to around 9,000, but more resistance looms there, such as the 38.2 per cent retracement of Nikkei's fall from July at 9,055 as well as the bottom of the Ichimoku cloud at 9,094.
Breaking decisively above 9,000 could be difficult given the market's dominant focus on European debt woes and the global financial system.
"If you look back at the 2008 financial crisis, and the Japanese financial crisis, share prices would rise for a day or two when there were positive headlines but there was no real recovery unless there were decisive policy measures," said Ryota Sakagami, chief strategist at SMBC Nikko Securities.
"Credit spreads (for banks) are still far from tight. It's hard to expect the Nikkei to move above 9,000 and stay there. A fall below 8,500 is more likely," he added.
Worries about the crisis could come back any moment on any signs of internal disaccord within the euro zone. One such example is uncertainty about whether the Slovakian parliament will ratify the euro zone's bailout fund on Tuesday, Sakagami added.
Soichiro Monji, chief strategist at Daiwa SB Investments, said constant improvement in US economic data is essential for further recovery in global stocks.
US nonfarm payrolls increased 103,000 in September, beating economists' forecasts but still falling short of the pace needed to pull down unemployment.
"The US job data last week was better than expected. The reading for previous months was revised up so that was good too. Still, job growth of around 100,000 (a month) isn't that strong," he said.
The broader Topix index rose 1.9 per cent to 755.87.
Shares of battered major exporters, such as Sony and Honda , outperformed the market, a trend which Daiwa SB's Monji said is likely to continue as long as the market is rebounding.
Sony rose 5.2 per cent while Honda gained 5.7 per cent.
Nidec gained 4.6 per cent after the electric motor maker said on Friday it would increase its stock buyback plan to as much as 47 billion yen or as much as 4.14 per cent of its outstanding stock.
Bank shares were mostly in line with overall market, with the Tokyo Stock Exchange's banking subindex up 1.8 per cent.
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