Given the chance that the Bank of Japan will end its zero interest rate policy in the next few months if not on Friday, tech stocks are a better buy than "Old Economy" names, many of which are burdened by interest-bearing debt, they said.

But they predicted the rebound would be selective, as investors look more closely at earnings results and focus more on businesses with strong growth potential.

"High-tech and Internet stocks have probably bottomed out and they do look slightly oversold considering their fundamentals. We are seeing a very good investment opportunity," said Daiwa Institute of Research's analyst Makoto Ueno.

He added, however, that a broad rally in the high-tech sector will have to wait until investors digest first-half earnings results, many of which are being announced in October and November.

In a recent report, he cited information processing firm Itochu Techno-Science Corp (CTC) and Fujitsu Support and Systems (Fsas) in particular as being oversold considering firm earnings.

Shares in CTC, a unit of trading firm Itochu Corp, are still at 482 yen ($4.44), half its February peak even after rising nearly 50 per cent in the four trading days to Thursday.

Computer system integration services provider Fsas, a unit of Fujitsu Ltd also performed well this week, but at Thursday's close of 12,640 yen was still down 61.4 percent from its peak at the start of March.

Ortwin Gierhake, an analyst at West LB Securities Panmure, said he was bullish on the IT sector, although broad gains in information technology shares would have to wait until the last quarter of this business year, which ends next March 31.

"In the last quarter we will generally see a correction in the upward direction. But a lot of investors need more time to look closely at what companies are actually doing."

He said shares in Softbank Corp had been oversold after falling 88 per cent from its share split-adjusted peak of 66,000 yen to last week.

Investors this week seemed to agree and turned to buying, lifting its price up 28 per cent to 10,900 in the four sessions to Thursday.

But many said although Softbank and other "new economy" stocks had bottomed out, investors who had bought at highs earlier in the year were lined up to sell anytime they clawed back to significant levels.

Others analysts argued that investors still wanted to buy into a dream of a New Economy, while regretting the indiscriminate tech euphoria of late last year to early 2000.

Companies offering new types of services related to wireless communications in addition to newly listed IT companies would likely be closely watched, many said.

Hiroyuki Nakai, senior executive officer of investment research at Nippon Global Securities, said he expected digital television-related businesses to take over from mobile phones as the next market darling and boost sales of electronics makers.

Japan's BS digital broadcasting services due to start next December, a move seen boosting sales of various digital home electronics makers such as Matsushita Electric Industrial, Pioneer Corp, and Sony Corp"Many of these companies will start announcing new products oriented towards digital television," Nakai said. "Investors will be watching for companies that can latch on to new business opportunities."

Dale Nicholls, who manages the Fidelity Select Cyclical Fund for Fidelity Investments Japan, said he would recommend old Japan businesses shifting their focus to new technology areas, such as optical fibre and computer system networks.

He gave Furukawa Electric Co Ltd as an example, saying it had swiftly expanded its business from its traditional electric wire and cables manufacturing to wavelength division multiplexing (WDM) technology.

-- (Reuters)