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TOKYO, Oct 21 (Reuters) - Japanese stocks rose in cautious trading on Wednesday morning after investors shrugged off weak trade data that stoked expectations for the possibility of further stimulus when the Bank of Japan meets for its monetary policy review on Oct. 30.
Fresh data showed Japan's annual export growth slowed for the third straight month in September, a signal that the country may be headed toward a third quarter contraction that would officially put Japan into recession.
Data from Japan's Ministry of Finance showed exports rose just 0.6 percent in the year to September, missing the 3.4 percent gain expected by economists in a Reuters poll.
Japanese markets opened down in what traders called a knee-jerk reaction to the weak trade data, but quickly turned positive as sentiment turned toward hopes for further easing from the BOJ.
The Nikkei share average gained 0.8 percent to end the morning session at 18,355.15.
"Japan's market is so liquid and has been so well conditioned to handle bad news since QQE first began that, in a way, bad news is good news sometimes," said Gavin Parry, managing director at Parry International Trading.
"We're also seeing some positive reaction in machinery and construction to supply-side priming coming out of China, and the auto sector is getting a boost after China auto sales came out positive yesterday."
Mazda Motor Corp and Toyota Motor Corp each gained 1.4 percent during the morning session while Nissan Motor Co climbed 1.7 percent.
The Topix subindex for iron and steel added 3.1 percent as the morning session's leading sector, with non-ferrous metals and machinery also outperforming. JFE Holdings gained 3.7 percent while Nippon Steel & Sumitomo Metal rose 3.1 percent.
The broader Topix gained 0.8 percent to end the morning session at 1,511.22 with all but 8 of its 33 subindexes in positive territory.
The JPX-Nikkei Index 400 rose 0.8 percent to 13,530.20. (Reporting by Joshua Hunt; Editing by Simon Cameron-Moore)