Japan's Nikkei share average inched up on Monday to hit a three-month closing high for the second session in a row as risk appetite remained robust and a softer yen provided support to recently battered exporters.

Recent comments from European leaders sustained hopes for progress in the region's debt crisis, driving broad gains as investors continued to shift money from the perceived safety of bonds into equities, in a reversal of July's risk-averse mood.

The Nikkei .N225 ticked up 0.1 percent to 9,171.16 but was off its high of 9,222.87 as some investors cashed in gains from last week's 3 percent rally in the benchmark in the afternoon session.

"The market was up last week because of this Nomura (Asset Management) investment trust ... People were kind of expecting these guys would really be powering the Nikkei today but it seemed like the run up was last week," a senior dealer at a foreign bank said.

Index heavyweight and domestic favorite, Softbank Corp (9984.T), which is up 39 percent on the year, added 0.3 percent, helping support the broader market.

Construction machinery makers suffered, with Komatsu Ltd (6301.T) shedding 1.3 percent after Bank of America Merrill Lynch downgraded it to 'neutral' from 'buy', reversing an initial gain of 1.3 percent after its U.S. counterpart, Caterpillar Inc (CAT.N), posted a 14 percent increase in dealer sales over the past three months.

Komatsu rival Hitachi Construction Machinery Co Ltd (6305.T) dropped 1.8 percent after Merrill also downgraded its rating, to 'underperform' from 'neutral'.

The broader Topix .TOPX slipped 0.2 percent to 764.66 in thin trade, with 1.32 billion shares changing hands, the fourth lowest level this year.

Mitsubishi Corp (8058.T) lost 1.4 percent after the trading company's Chief Financial Officer Ryoichi Ueda was quoted in the Nikkei newspaper over the weekend as saying that hitting the 500 billion net profit target would be a tough task.

He cited the longer-than-expected labor dispute at coal mines operated by BHP Billiton-Mitsubishi Alliance, a joint venture with BHP Billiton (BLT.L), and the fall in coking coal prices. A spokeswoman at Mitsubishi Corp declined to comment.

Some analysts see the Nikkei's recent gains as fragile and skewed by lower participation than normal amid the holiday season.

"I feel a bit uncomfortable because the market is strong in spite of the U.S. and euro zone economies still not being that strong," said Yuuki Sakurai, CEO of Fukoku Capital Management.

"Sentiment also seems a bit overly optimistic considering there were a lot of companies that cut full-year guidance during earnings season."

Eiji Kinouchi, chief technical analyst at Daiwa Securities, said the Nikkei could float up to between 9,400 and 9,700 in the short-term but "will drag its feet from September," he said in a note.

A series of pivotal events on the euro zone calendar, however, as well as uncertainty about whether the slowdown in the United States and China has bottomed out, remain a cause for concern.

Reuters

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