TOKYO (Reuters) - The Nikkei average edged up 0.6 percent on Thursday, as banks such as Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research, Stock Buzz) jumped on expectations the Bank of Japan will follow the Federal Reserve's move to cut interest rates to near zero.
But gains were capped by persistent concerns over the auto sector amid the global economic downturn and rises in the yen versus the dollar. Honda Motor (7267.T: Quote, Profile, Research, Stock Buzz) slid after cutting its profit forecasts in its third warning this year.
Panasonic Corp (6752.T: Quote, Profile, Research, Stock Buzz) dipped after Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) agreed to the electronics giant's offer to buy its stake in Sanyo Electric Co Ltd (6764.T: Quote, Profile, Research, Stock Buzz), and Sanyo shares fell as the bid was below its share price and only slightly sweeter than one Goldman rejected earlier this month.
"A rise in bank shares supported the overall market throughout the day as expectations for a BOJ rate cut mount," said Shinji Igarashi, an equity manager in the sales department at Chuo Securities.
The benchmark Nikkei .N225 rose 54.71 points to 8,667.23, a one-week closing high.
The broader Topix .TOPX was little changed on the day at 838.69.
The dollar rose 0.8 percent to 87.95 yen, but stayed in sight of 87.13 yen hit on Wednesday, the lowest since mid-1995, weighing on some exporters.
"Exporters will continue to suffer unless the yen stops appreciating, especially against the dollar," said Yuuki Sakurai, a general manager of financial and investment planning at Fukoku Mutual Life Insurance.
Exporters are feeling the pinch from the yen's surge as they had made projections for this business year based on the assumption that the dollar would move around 100 yen. A stronger yen erodes exporters' overseas profits when turned back into yen.
Banks extended gains booked on Wednesday. Mitsubishi UFJ Financial Group (8306.T: Quote, Profile, Research, Stock Buzz), Japan's biggest bank, rose 4.4 percent to 542 yen. No. 2 Mizuho Financial Group (8411.T: Quote, Profile, Research, Stock Buzz) soared 8.1 percent to 256,800 yen and No. 3 Sumitomo Mitsui Financial Group (8316.T: Quote, Profile, Research, Stock Buzz) surged 8.5 percent to 384,000 yen.
Panasonic slid 0.5 percent to 1,021 yen, while Sanyo shed 1.4 percent to 141 yen.
Honda slid 3.5 percent to 1,825 yen after Japan's No. 2 automaker slashed its operating forecast by two-thirds as the global recession batters car sales and sends the yen soaring.
Trade was light on the Tokyo exchange's first section, with 1.9 billion shares changing hands, compared with last week's daily average of 2.3 billion.
Declining stocks outnumbered advancing ones, 969 to 646.
(Reporting by Rika Otsuka; Additional reporting by Aiko Hayashi; Editing by Hugh Lawson)
