January 19, 2017 / 2:28 AM / a year ago

Nikkei bounces from 6-week low, financials lead gains

* Rise in U.S. bond yields after Yellen lifts financials

* Short-covering accelerates ahead of Trump inauguration

* Toshiba dives in volume as nuclear losses reportedly snowballing

By Hideyuki Sano

TOKYO, Jan 19 (Reuters) - Japan’s Nikkei share average rebounded from a six-week low on Thursday, with financial stocks cheered by the rise in U.S. bond yields after Federal Reserve Chair Janet Yellen signalled a solid pace of interest rate hikes.

In a generally slow morning session ahead of the looming inauguration of U.S. President-elect Donald Trump on Friday, Toshiba shares tumbled in heavy volume after a media report the conglomerate could post a loss of more than 500 billion yen ($4.36 billion) at its U.S. nuclear reactor business.

The Nikkei rose 0.9 percent to 19,072.42, rebounding from six-week lows of 18,650.33 touched on Wednesday. The immediate resistance is seen at its 25-day average around 19,285.

The broader Topix also climbed 0.9 percent to 1,527.97.

Bank shares rallied 2.0 percent, with Mizuho Financial up 2.4 percent and Mitsubishi UFJ 2.1 percent. Insurers, another beneficiary of higher rates and yields, gained 1.9 percent.

“Yellen spelled out fairly clearly that the Fed is going to raise rates a few times a year to three percent,” said Masahiro Ayukai, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“And there’s buying related to reversal in the yen, given strong relations between Japanese stocks and the yen,” he added.

The yen had risen to a seven-week high against the dollar on Wednesday, partly on Trump’s reported comments that the dollar is too strong, but has weakened substantially after Yellen’s remarks.

A lot of buying in the Nikkei appeared to be short-covering, rather than fresh buying, market players said. The level of short-selling had been relatively high in the past week.

Trade is slowing ahead of Trump’s inauguration as investors look for more details of the new administration’s economic policies.

Some market players are cautiously optimistic that more details on his tax cuts and infrastructure spending plans - a major driver of stocks worldwide since November - could give markets a fresh fillip.

“The speech from the new president may present a more optimistic picture than the kind of messy messages that have made some people nervous over the last few weeks,” said Stefan Worrall, director of Japan equity sales at Credit Suisse.

Worrall said more visibility on his policy could benefit markets just like British Prime Minister Theresa May’s speech on Brexit on Tuesday has reduced uncertainty and boosted risk sentiment even if markets may not have liked everything she said.

“I think it makes sense to see a little bit more improvement in sentiment as we approach this event,” he said.

Toshiba shares were the most actively traded by mid-morning, falling as much as 14.7 percent the media report of its snowballing losses at its nuclear plant business. (Reporting by Hideyuki Sano; Editing by Shri Navaratnam)

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