Wednesday November 11, 07:41 AM

Nikkei edges up, but gains capped by strong yen

TOKYO (Reuters) - Japan's Nikkei stock average edged up 0.6 percent on Wednesday, helped by a surprisingly large jump in domestic machinery orders for September and after manufacturers forecast a rise in the fourth quarter.

But the yen's advance against the dollar limited gains, with some chip-related firms such as Advantest Corp slipping after climbing the previous day. Core machinery orders, highly volatile series regarded as an indicator of capital spending in September, surged 10.5 percent and manufacturers forecast a rise of 1.0 percent in October-December, the first quarterly increase in seven quarters. But analysts remained wary.

"This index is highly volatile and I'm not sure how many investors really rely on it as an indicator," said Hiroaki Osakabe, a fund manager at Chibagin Asset Management.

"Basically, expectations for economic growth in Japan are quite low compared to the rest of the world and Asia especially, and Japanese stocks just aren't rising as a result."

The benchmark Nikkei gained 54.40 points to 9,925.13, while the broader Topix -- a less tech-heavy index -- rose 0.5 percent to 876.82.

"Machinery orders may be bottoming out, but this does not mean that this 1.0 percent will now grow to 3.0 percent and then to 10 percent," said Junko Nishioka, chief economist at RBS Securities.

"Companies are still suffering from excess capacity, and the strong yen and a slow recovery in U.S. demand are still dragging on overall corporate activity.

Investors were also waiting for the release of Chinese economic data, including October industrial output and preliminary trade data, due out around 0200 GMT.

The Dow industrials eked out a new 13-month high, though the Nasdaq and S&P 500 edged lower, after cautious statements on the economic outlook by several Fed officials underscored the belief that an easy monetary policy will remain intact well into next year.

Among machinery makers, Sumitomo Heavy Industries rose 3.6 percent to 431 yen and Daikin Industries climbed 3.2 percent to 3,270 yen.

Japan Airlines Corp <9205> rose 5.7 percent to 111 yen after the government said it was considering legislation to cut the pensions of the airline's retirees and would use loans from a state bank to keep it operating.

The Nikkei financial daily reported on Tuesday the airline likely had an operating loss of more than 90 billion yen ($1 billion) in the first half ended Sept 30, hurt by a decline in passengers and per-customer sales.

Pacific Metals, a leading producer of ferronickel - used in production of stainless steel - fell 3.8 percent to 652 yen after the company said its operating profit had fallen 77 percent during the April-September first half.

Advantest lost 1 percent to 1,991 yen and Tokyo Electron fell 1.2 percent to 4,920 yen.

(Reporting by Elaine Lies; Editing by Edwina Gibbs)