May 31, 2018 / 2:31 AM / 5 months ago

Nikkei rebounds as Italy fears recede, but yen, weak data cap gains

TOKYO, May 31 (Reuters) - Japan's Nikkei share average rebounded from a six-week low on Thursday as worries over Italy's political crisis receded, but a stronger yen and weak industrial output limited the gains.

Japan's industrial output grew much less than analysts had expectated in April, data showed before the market opened, raising doubts about the consensus view that the economy would snap back in spring after contracting in the first quarter.

The Nikkei rose 0.5 percent to 22,128.77 points by midmorning, after hitting a six-week low of 21,931.65 on the previous day.

While mining, auto and drug shares outperformed, shippers and air carriers fell.

Japan Petroleum Exploration jumped more than 5 percent after Mitsubishi UFJ Morgan Stanley Securities hiked its stock rating.

Toyota Motor gained 2.0 percent and Honda Motor rose 0.6 percent. Mitsui OSK Lines dropped 1.7 percent and Japan Airlines shed 1.7 percent.

Japanese stocks sank earlier this week in line with global equity markets as fears about instability in Italy and the possibility of the country's exit from the euro sent investors piling into safety assets.

But stocks rebounded overnight after Italy's 5-Star Movement made a renewed attempt to form a coalition government and called for euroskeptic Paolo Savona to withdraw his candidacy as economy minister.

However, traders said that gains may be short-lived as negative factors for Japanese stocks such as a stronger yen are likely to keep activity in check.

Despite the gains, the Nikkei is still trading below its June futures close of 22,255 on Chicago Mercantile Exchange overnight.

"Investors are nervous about the stronger yen, so they probably won't chase the market higher," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

He also noted that investors are focused on the impact of a planned reshuffling of MSCI Japan Index that takes place at Thursday's market close, which could see fund managers pulling 300-400 billion yen ($2.8-3.7 billion) off the Tokyo market.

MSCI earlier this month changed constituents for its indexes, and MSCI Japan Index added CyberAgent, Kobayashi Pharmaceutical Co, SG Holdings Co 9143.T and Tokyo Century Corp, while it deleted Kyushu Financial Group, Hachijuni Bank and Mixi Inc.

The broader Topix added 0.5 percent to 1,744.69.

$1 = 108.6100 yen Editing by Kim Coghill

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