Bareksa.com - Japanese shares climbed to a five-month high on Monday morning, after an upbeat survey on Chinese manufacturing activity added to the positive mood from the U.S. Federal Reserve's dovish policy stance.

The benchmark Nikkei advanced 0.4 percent to 15,404.78 by the midday break, after rising as high as 15,405.16, its best level since Jan. 24.

Activity in China's factory sector expanded in June for the first time in six months as new orders surged, a preliminary HSBC survey showed, offering new signs the world's second-largest economy is stabilising thanks to Beijing's measures to shore up growth.

U.S. equities rose on Friday, driving the Dow and the S&P 500 to close at record highs, boosted by money managers convinced that policymakers will keep a lid on interest rates
through 2016.

"It seems like short-selling is becoming a bit difficult," said Yasuo Sakuma, portfolio manager at Bayview Asset Management, noting that the ratio of short-selling has dropped sharply this month to around 26 percent from above 30 percent.

"Investors may be getting nervous about risk of not having Japanese shares. They may have snapped up a lot of shares last week, looking at the jump in trading volume on Thursday and
Friday."

Construction equipment makers, which have considerable exposure to China, outperformed following the Chinese survey, with Hitachi Construction jumping 2.5 percent. Komatsu also rose 1.1 percent.

Oil and coal companies also made hefty gains of 1.5 percent to become the best performing sector on the Topix, underpinned by the recent rise in oil prices, with Idemitsu
Kosan climbing 2 percent.

As the Nikkei has risen almost 10 percent in just over a month from a low below 14,000 hit on May 21, some investors are getting nervous over the possibility of a correction.

The broader Topix's 14-day relative strength index rose to a 13-month high of 75 above the 70 threshold, a level seen as indicating an overbought territory.

Another strong sign comes from the up-down ratio, a gauge closely watched by Japanese players. The rate of the number of shares that advanced over the past 25 sessions divided by that of declining shares rose above 150 percent, its highest level in more than a year, well above the 120 mark that is considered to signal an overbought territory.

Investors are also concerned the conflict in Iraq could lift oil prices further by disrupting oil supply as Brent crude neared nine-month highs late last week, touching $115.71 a barrel. Iraq is the second-largest OPEC producer.

Still, many market players are sticking to a bullish view for now, that valuations are still not that expensive.

According to Thomson Reuters Starmine, the Nikkei 225's dividend yield is 1.8 pct, three times as much as the 10-year Japanese government bond yield. It is traded at 1.3 times its book value on the whole, with about a third of its constituents still trading below their book value.

Bucking the overall market, Sapporo Holdings dropped 1.2 percent after the brewer said it would post a special loss of 11.6 billion yen ($114 million) in the second quarter ending this month, as it prepares to pay that much in additional liquor taxes after questions over whether one of its beverages was classified wrongly in a lower tax segment.

The Topix added 0.1 percent to 1,269.74 in moderate trade, while the JPX-Nikkei Index 400 rose 0.1 percent to 11,555.07. (Source : Reuters)