Nikkei at 2-week high, banks rally on Morgan, Greece deal

(Reuters) - Tokyo stocks climbed to a two-week high Friday, led by banks that jumped on Morgan Stanley's (MS.N) strong results and euro-sensitive issues such as Canon (7751.T), up on the euro's gains after officials agreed on steps to solve Greece's debt woes.

Individual investors as well as domestic institutional players dominated the market, participants said, adding that concerns about the yen's renewed strength against the dollar had capped gains.

"Watch volumes on banks. This is still mostly long-term investors who previously owned the stock re-establishing positions, but we're also seeing some new buyers piling into these shares," said Takashi Ohba, a senior strategist at Okasan Securities.

The Nikkei rose 1.2 percent to 10,132.11, its highest close since July 8 and adding 1.6 percent for the week. The broader Topix .TOPX rose 1 percent to 868.81.

The benchmark Friday jumped above resistance at 10,005, which was its tenkan line on its daily Ichimoku cloud.

"More firms posted earnings above expectations yesterday, defying worries over supply chains. That's why firms posting results next week are charging higher today," said a trader at a foreign brokerage who did not want to be quoted by name.

Canon Marketing (8060.T) jumped 5.9 percent after hiking its profit forecast, while Tamron Co (7740.T) soared 7.0 percent to 1,971 yen, after the company lifted its net profit outlook and Nomura Securities upgraded the stock to "buy.

"After these hikes and stronger-than-expected results from Wall Street, everyone is looking at firms reporting next week such as Toshiba and Komatsu," the trader said.

Construction machinery maker Komatsu Ltd (6301.T) added 1.4 percent to 2,539 yen, while electronics conglomerate Toshiba Corp (6502.T), already in favor this week after Apple Inc's (AAPL.O) strong earnings, gained 2.0 percent to 419 yen.

Most investors are long in the market, suggesting sentiment toward Japanese stocks is overwhelmingly positive.

"The Japanese equities long-short ratio reached an annual high of 12.28 on July 14. This denotes that there are over 12 times more longs than shorts in the market as institutional ownership in the region is close to annual highs," research firm Data Explorers said in a note to clients.

BANKS ADVANCE

Morgan Stanley (MS.N) wowed Wall Street Thursday with results that far surpassed expectations, while an emergency summit of leaders of the 17-nation euro zone pledged Thursday to conduct a second bailout of Greece.

These factors helped banks .IBNKS.T continue their relief rally into a fourth straight day, with the sector subindex rising to a two-week high. They were led by Mitsubishi UFJ Financial Group (8306.T), Japan's largest bank by assets, climbing 3.3 percent to 407 yen in active trade.

Goldman Sachs also said Thursday that Japanese lenders were likely to report earnings consensus for the first quarter of this fiscal year in line or above the market's consensus, adding to banks' rally. The brokerage said Mitsubishi UFJ is its top pick.

"People are turning a bit more bullish, because you need financials to really push the whole market higher. Forget about any decent rally when that sector lags others," said Okasan's Ohba.

He adds that banks' advance may help the Nikkei pop above its post-quake high of 10,207.91 heading into the earnings season next week.

Banking shares were one of the worst-hit sectors after the March 11 disaster because of speculation that they may have to forgive some of their loans to Tokyo Electric Power Co (9501.T), which is still struggling with the Fukushima radiation crisis.

MUFG's shares are still down 8 percent from where they were before the earthquake. The bank shares subindex .IBNKS.T has fallen 11 percent since then, compared with a 2.9 percent fall in the Nikkei.

Canon, which obtains about one third of its sales in Europe, rose 1.3 percent to 3,785 yen and Nikon, another euro-sensitive stock, gained 1.4 percent to 1,857 yen after the euro rose to a two-week high against the Japanese currency Thursday.

Volumes picked up with 1.8 billion shares changing hands on the main board, higher than this week's daily volumes of around 1.5 billion shares.