TOKYO (Reuters) - Japanese stocks are likely to rise on Tuesday after better-than-expected U.S. home sales fuelled optimism about the strength of the economic recovery and a weaker dollar boosted commodity shares, sending Wall Street higher.
Hitachi Ltd is set to be in focus after the Nikkei business daily said the company is expected to sign a high-speed railway project deal in Britain worth more than 500 billion yen.
But gains are likely to be limited by a strong yen a day after the dollar fell to a six-week low against the Japanese currency, though the greenback was edging up slightly at 89.02 yen in early trade.
"There's worry about oversupply, worry about the yen's strength and worry about political uncertainty," said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.
"But at the same time a number of technical factors show that the Nikkei has been oversold, and selling from overseas hedge funds is also likely to quiet down a bit."
Sales of previously owned U.S. homes rose to their highest level in more than 2-½ years last month, helping to allay worries about the sector sparked last week when another report showed housing starts fell sharply in October.
All Wall Street indexes rose more than 1 percent and the Dow reached a 13-month high, but volume was light.
The U.S. dollar fell 0.7 percent against a basket of major currencies after comments from a senior Federal Reserve official reinforced expectations U.S. interest rates will stay low for some time.
This helped lift commodity stocks, with gold hitting a record $1,170.55 an ounce and copper rising to levels not seen for 14 months, helped also by expectations of recovery.
The benchmark Nikkei is seen trading between 9,400 and 9,600, market players said. It closed at 9,497.68 on Friday, with markets closed on Monday for a holiday.
In a sign the Nikkei is likely to open higher, Nikkei futures traded in Chicago closed at 9,560, up 0.7 percent from Friday's Osaka close .
STOCKS TO WATCH
-- Japan Airlines Corp
JAL asked retirees and employees on Monday to accept an average 40 percent cut to their pension payouts and warned the struggling airline could face bankruptcy if an agreement could not be reached.
-- Honda Motor Co, other automakers
A government official said on Friday that Japan will consider extending a car scrappage incentive scheme due to end in March by six months to support the country's fragile car market.
-- Showa Shell Sekiyu
Showa Shell and the Niigata Prefecture government will build a 700 million yen 1,000 megawatt solar power plant in northwestern Japan to begin generating power in September next year, NHK said
-- Mori Seiki Co
Machine tool maker Mori Seiki Co said it will raise up to 18.2 billion yen ($205 million) to invest in new equipment and to buy Sony Corp's measuring equipment making unit.
-- Hino Motors Ltd
Hino plans to invest 3 billion yen to build a facility to produce an annual 25,000 small-scale trucks in Indonesia, the Nikkei business daily said on Monday.
(Reporting by Elaine Lies; Editing by Edwina Gibbs)