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Foreign investors were net buyers of Japanese stocks for the fourth week in a row last week, apparently banking on signs of an economic recovery in Japan.

Nonresidents chalked up 74.26 billion yen in net purchases on the Tokyo, Osaka and Nagoya stock exchanges in the holiday-shortened week, compared with 20.77 billion yen the previous week, according to a weekly industry report.

This is the longest duration of net buying since the six-week excess buying set between late October and early December, offering fresh evidence of a growing shift in a global flow of investment funds into Japanese stocks.

There has been talk that foreign brokers and global equity strategists are recommending that investors increase their holdings of Japanese equities, saying improved profitability has not been factored into their prices.

Foreign investors opted for a broad array of shares supported by improved economic and corporate earnings prospects, brokerage officials said.

Nonresidents’ recent favorites included electric machinery and other shares expected to benefit from an economic pickup, plus long-neglected cyclical issues sensitive to fluctuations in domestic demand, they said.

Some analysts cautioned, however, that foreigners’ stepped-up purchases may turn out to be a one-time event.

As a major demoralizing factor, they pointed to the ongoing review of Japan’s sovereign rating by Moody’s Investors Service Inc.

In a report due out May 31, the U.S. credit rating agency is widely expected to cut Japan’s debt rating by two notches to A2, the lowest among industrial nations.

Major domestic investors remained on the sidelines during the week of the Golden Week holidays.

Long-term credit banks, city banks and regional banks as a whole registered 22.6 billion yen in net sales on top of 12.5 billion yen the previous week.

Trust banks — the managers of public pension funds — turned net sellers, selling 95.1 billion yen more than they bought, their highest net sales since 213.5 billion yen set in the second week of May 2001, in a turnaround from net purchases of 7 billion yen the previous week.

Individual investors remained sanguine, however, buying more than they sold for the second week running.

Although trading remained on a negative note through much of the week, individual investors ran 25.1 billion yen in net purchases on top of 46.5 billion yen the previous week, apparently counting on a market rally in the offing.

The benchmark 225-issue Nikkei average ended the week at 11,531.11, down 19.90 on the week.

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