Tokyo stocks reverse losses, end 1.66% higher

Tokyo stocks ended 1.66 percent higher on Friday -- reversing earlier losses following a slump on Wall Street -- as dollar-buying pushed down the yen, giving a boost to exporters.

The benchmark Nikkei 225 index gained 215.55 points to 13,230.13 while the Topix index of all first-section shares was 0.70 percent, or 7.59 points, higher at 1,099.40.

Japan's premier bourse had lost more than two percent in the first few minutes as dealers took a cue from the biggest one-day fall of the year for the Dow on Wall Street.

Worries over a likely end to the Federal Reserve's hefty stimulus measures this year and poor Chinese manufacturing data sent investors running for cover.

But with an end to the US stimulus meaning there will be fewer dollars in the financial system, demand for the greenback picked up, providing upward momentum for equities.

In afternoon forex trade the dollar bought 97.80 yen, compared with 97.27 yen in New York late Thursday.

A weaker yen helps Japanese exporters as it makes their products cheaper overseas, while a strong yen deteriorates their repatriated profits.

"The market has the look of selling having been exhausted," an equity trading director at a foreign brokerage told Dow Jones Newswires.

"Participation levels seem to show that many unidirectional traders who had been shorting the yen and going long on Nikkei futures have cleared out now, which should allow the market to find its footing."

US stocks plunged Thursday, extending one percent losses Wednesday after Fed chief Ben Bernanke said it could begin pulling back its $85 billion-a-month bond-buying late this year and wind it up by mid-2014.

On Wall Street the Dow lost nearly 354 points, or 2.3 percent -- its largest points fall since November 9, 2011. European bourses also fell sharply.

The Tokyo bourse has suffered weeks of volatility since hitting a five-year high last month.

As Japan heads into the final month before July 21 upper house elections investors can expect even more market-friendly rhetoric from the government, said an equity trading director at a foreign brokerage.

The polls are key for Prime Minister Shinzo Abe who is trying to solidify his power base following victory in the lower house last December.

Sony was down 0.54 percent at 2,002 yen a day after its chief executive said the company's board was studying a proposed plan to spin off part of its profitable entertainment arm.

Telecom firm SoftBank, which has offered to buy US wireless carrier Sprint Nextel for $21.6 billion, rose 1.83 percent to 5,560 yen.