Japan Stocks Rally on Bank-Recovery Optimism; Toshiba Soars

By Masaki Kondo

March 11 (Bloomberg) -- Japanese stocks rallied after Citigroup Inc. said it had a profit in the first two months of this year, triggering speculation a recovery of the global financial system is in sight.

Mizuho Financial Group Inc., the Japanese bank with the biggest subprime writedowns, gained 5.4 percent, following a worldwide rebound in equities. Mitsubishi UFJ Financial Group Inc. advanced 4.1 percent, even after a real estate company to which it lent money became Japan’s third-biggest bankruptcy this year. Toshiba Corp. leapt 9.5 percent on a newspaper report it may return to profit next fiscal year.

The Nikkei 225 Stock Average jumped 321.14, or 4.6 percent, to close at 7,376.12 in Tokyo, the biggest gain since Jan. 27. The broader Topix index added 18.78, or 2.7 percent, to 722.28, with three stocks rising for each that slumped.

“The global rally spurred by Citi may indicate a retreat of excess pessimism,” said Mitsushige Akino, who oversees about $615 million at Ichiyoshi Investment Management Co. “With governments globally bringing out stimulus measures, the world’s economy is likely to start recovering in the second half of this year, which may bring back Japanese manufacturers to the black.”

The Nikkei has lost a fifth of its value from this year’s high of 9,239.24 on Jan. 7 as optimism faded that governments and regulators globally can jumpstart growth and overhaul banks. The Yomiuri newspaper reported today Japan’s government may propose a new economic stimulus plan as early as this month.

Stocks Undervalued?

The Nikkei’s constituents traded at 0.81 times their corporate net worth as of yesterday, the lowest level on record dating back to July 1989, according to Nikkei Inc. The price-to- book ratio indicates the stocks are undervalued, Hiroichi Nishi, an equities manager at Nikko Cordial Securities Inc., said in an interview with Bloomberg Television.

In New York, the Standard & Poor’s 500 Index leapt 6.4 percent yesterday, while the MSCI World Index gained 5.3 percent from the lowest level in more than 13 years. Citigroup was profitable in January and February and is having its best quarter since the third quarter of 2007, Chief Executive Officer Vikram Pandit wrote in an internal memorandum.

Mizuho, Japan’s second-largest listed bank, jumped 5.4 percent to 176 yen, while No. 3 Sumitomo Mitsui Financial Group Inc. rose 4.8 percent to 2,820 yen. Tokio Marine Holdings Inc., the nation’s biggest casualty insurer, climbed 7.4 percent to 2,025 yen, and Nomura Holdings Inc., the nation’s No. 1 brokerage, gained 10 percent to 458 yen.

12th Bankruptcy

Mitsubishi UFJ rose 4.1 percent to 411 yen, while Aozora Bank Ltd., the Japanese lender controlled by Cerberus Capital Management LP, added 9.2 percent to 107 yen. The banks are among lenders to Pacific Holdings Co., a real-estate manager that filed for bankruptcy yesterday with 163.6 billion yen ($1.66 billion) in liabilities, according to the company’s annual report issued this month.

Pacific Holdings became the 12th listed Japanese business to go under this year and the third-biggest bankruptcy, as the recession drives down property prices and prompts banks to cut off lending. The shares tumbled by the daily limit of 300 yen, or 16 percent, to 1,614.

Toshiba, Japan’s biggest chipmaker, surged 9.5 percent to 242 yen, breaking a three-day losing streak. The company may forecast operating profit of about 100 billion yen for the year to March 2010, due in part to lower costs, the Nikkei newspaper reported today. The company, which expects a loss of 280 billion yen for this fiscal year, today said it has not determined its earnings estimate.

Fanuc Ltd., the world’s largest maker of industrial robots, jumped 5.7 percent to 5,900 yen, while Daikin Industries Ltd., the biggest Japanese maker of air conditioners, rose 7.2 percent to 2,450 yen. Japanese machinery orders fell less than economists had expected in January, raising speculation demand for capital goods isn’t as weak as originally thought.

Nikkei futures expiring in March added 5 percent to 7,390 in Osaka and gained 4.6 percent to 7,370 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.