In TOKYO story headlined "WEEK AHEAD-Tokyo stocks seen at mercy of U.S." please read in first paragraph ....June 30... instead of ....June 28 (correcting date).
A corrected story follows.
By David McMahon
TOKYO, June 30 (Reuters) - Tokyo stocks are expected to edge cautiously higher this week with the market tugged between potentially upbeat economic data at home and the impact of the latest U.S. corporate scandals.
On the downside, shares in office equipment company Xerox Corp plunged 13 percent on Friday after it said it would restate five years of results. That came just days after long distance and data carrier WorldCom Inc dropped an accounting bombshell, sending Wall Street reeling.
"This is just what we feared the most," said Hiroyuki Nakai, manager of investment research at Tokai Tokyo Securities.
"When the earnings of global blue-chip companies like Xerox turn out to be suspect, then all of a sudden investors can't trust valuations... That could send them heading for the exits," he said.
The Nikkei average eked out a 2.6 percent gain last week, but fell 9.7 percent for the whole of June, pulled down by falls in U.S. stocks and concerns about a strengthening yen.
It was the worst performance by the benchmark index since it fell 11.6 percent in April 2001. Analysts forecast it would move between 10,000 and 11,000 this week, ranging widely due to uncertainty about volatile U.S. stocks.
On the upside, key economic data is expected to underscore tentative economic recoveries in Japan and the United States.
"Investors will have their eyes on Monday's 'tankan' survey, which should give us an indication about the strength of the Japanese economic recovery," said Masayoshi Yano, an investment information manager at Tokai Tokyo Securities.
The quarterly Bank of Japan tankan index measures business sentiment by subtracting the percentage of companies reporting unfavourable business conditions from the number that say they are favourable.
A Reuters poll of economists gave a median forecast of minus 26 for the June diffusion index for large manufacturers, an improvement of 12 points from minus 38 in the March survey.
Investors will also be watching the Institute of Supply Management's (ISM) June survey of the U.S. manufacturing sector, due ahead of the Wall Street open on Monday, and expected to paint a rosy picture.
Leading Japanese exporters such as Honda Motor Co Ltd rely on the U.S. for a large proportion of their revenue.
But with a wave of corporate scandals and investor jitters over possible extremist attacks to mar July 4 U.S. independence day celebrations, Japanese stocks are seen at the mercy of Wall Street in the short term.
"Investors are worried there may be more skeletons in the cupboard, and if Wall Street were to tank due to further scandals we can't rule out a fall in the Nikkei back toward its February lows of around 9,400," said Jyoji Maki, senior director at Baring Asset Management.
In New York, the blue-chip Dow Jones Industrial Average closed 0.29 percent down on Friday at 9,243.26.
YEN STILL A WORRY
A stronger yen is also setting off alarm bells, threatening to eat into the overseas profits of Japan's exporters and derail a fragile export-led recovery.
In Friday trade, the dollar dropped as far as 118.36 yen, hitting a nine-month low, and prompting the Bank of Japan (BOJ) to enlist the aid of the European Central Bank and the U.S. Federal Reserve to buy dollars and euros on its behalf.
The BOJ has intervened seven times in the past two months to stem the yen's climb. The Japanese currency has risen 12 percent against the dollar since April 1.
Against this background, blue chips such as Toyota Motor Corp , Honda Motor Corp , and NEC Corp hit fresh year-to-date lows last week.
However, some analysts say exporters have moved into oversold territory, with the worst-case scenario already priced in.
An appreciation in the yen to 110 to the dollar and a sharp fall in U.S. auto sales were already being priced into automakers' shares, starting to make them look attractive, Nikko Salomon Smith Barney analyst Noriyuki Matsushima said in a note to clients on Friday.
Toyota shares bounced back six percent to 3,180 yen on Friday.
Other analysts, however, are more cautious.
"Perhaps the Bank of Japan will keep intervening. But in the end it's like fighting gravity," said Tokai Tokyo's Yano.
With U.S. and European officials welcoming the dollar's fall, traders doubt the effectiveness of further interventions.
They say a move may continue into defensive and small-cap stocks, which are seen as offering relatively low earnings risk against a background of volatile stocks and a firming yen.
FOREIGNERS TURN NET SELLERS
In the week between June 17 and 21, foreign investors sold a net 139.86 billion yen of Japanese stocks on the Tokyo, Osaka and Nagoya bourses, following nine straight months of buying.
"With investor jitters about terrorist attacks and corporate scandals, there's a risk a move by Japanese and foreign investors away from equities into bonds and other assets will accelerate," said Sayaka Higaki, strategist at Kokusai Securities.
In July, Japanese institutional investors plan to steer funds into bonds from equities on concerns that accounting scandals will continue to nag at U.S. stocks and other global equities markets, a Reuters survey showed on Thursday.
Investors plan to lower their allocation of Japanese equities by 0.1 percentage points to 24.4, having raised the figure for three straight months.
But analysts say strong buying by individual investors is providing support. Individuals bought a net 178.74 billion yen of Japanese stocks in the week between June 17 and 21, more than outweighing selling by foreigners.
MONDAY, JUNE 1
-- Bank of Japan (BOJ) to release June "tankan" quarterly corporate survey at 8:50 a.m. (Sunday 2350 GMT)
-- Yasuda Fire & Marine Insurance Co and Nissan Fire & Marine Insurance Co merge to form Sompo Japan Insurance Inc.
-- South Korean President Kim Dae-jung to meet Prime Minister Junichiro Koizumi.
TUESDAY, JUNE 2
-- President Johannes Rau of Germany to meet Koizumi.
-- BOJ to release monetary base data for June
FRIDAY, JULY 5
-- Cabinet Office to release preliminary index of leading indicators for May.