Japanese stocks record highest weekly foreign outflow in three months

Dec 26 (Reuters) - Japanese stocks recorded their highest foreign outflow in three months in the week through Dec. 21, driven by expectations of a cautious pace of U.S. Federal Reserve rate cuts next year.

Foreign investors withdrew a net 1.02 trillion yen ($6.48 billion) from Japanese stocks last week, registering their largest weekly net sales since Sept. 21, data from Japan's Ministry of Finance showed.

Last week, the U.S. Federal Reserve signalled a cautious pace of easing next year while reducing policy rates by a quarter point as expected.

The Nikkei index .N225 fell by 1.95% last week but has since gained over 1% this week after a cooler-than-expected U.S. inflation report raised hopes for Fed rate cuts next year. The yen also weakened as the likelihood of a January rate hike by the Bank of Japan decreased.

Foreigners have purchased about 738.3 billion yen worth of Japanese stocks so far this year, compared with about 3.35 trillion yen worth of net purchases in the same period last year.

Meanwhile, Japanese long-term bonds witnessed a net 1.95 trillion yen worth of foreign outflows last week, the biggest amount in three months. Foreigners also ditched a net 2.96 trillion yen worth of short-term debt securities.

At the same time, Japanese investors bought a net 181.5 billion yen worth of foreign equities, extending net purchases into a second successive week.

They, however, divested about 919.2 billion yen worth of long-term foreign bonds, posting a fourth weekly net sales in six weeks.

($1 = 157.4000 yen)

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Janane Venkatraman)

((gaurav.dogra@thomsonreuters.com; +91(080) 67496197;))