Nikkei logs 2-month closing high after US data boosts Fed rate cut bets

Japan's Nikkei share average finished at a two-month closing high on Thursday, tracking Wall Street's strength, after an in-line U.S. inflation report boosted expectations of a Federal Reserve interest rate cut next week.

The Nikkei climbed 1.21% in fourth straight session of gains to 39,849.14, its highest close since Oct. 15. The index crossed 40,000 for the first time since that day.

The broader Topix rose 0.86% to 2,773.03.

"The Nikkei was not able to keep the 40,000 level because investors sold stocks to book profits," said Jun Morita, general manager of the research department at Chibagin Asset Management.

"But the environment is positive for local equities because the yen seems to remain weak against the dollar even as the Fed is to cut rates and the Bank of Japan is to raise rates."

Wall Street's benchmark S&P 500 index rose on Wednesday and a rally in tech stocks lifted the Nasdaq above the 20,000-point milestone for the first time following the inflation report.

The BOJ is leaning toward keeping interest rates steady at its meeting next week as policymakers prefer to spend more time scrutinising overseas risks and clues on next year's wage outlook.

"Whether the BOJ raises rates this month or next month, the market is unlikely to make a drastic move like in August," said Yugo Tsuboi, chief strategist at Daiwa Securities.

Swap rates indicated a 25.3% chance for a 25-bps rate increase next week and a 69% chance of that move in January.

Chip-testing equipment maker Advantest jumped 5% to become the biggest boost for the Nikkei. Uniqlo owner Fast Retailing rose 0.87%.

Silicon wafer maker Shin-Etsu Chemical fell 0.77% to weigh on the Nikkei the most.

Of more than 1,600 stocks trading on the Tokyo Stock Exchange's prime market, 64% rose and 32% fell, with 3% trading flat. ($1 = 152.2200 yen)