* Nikkei hits highest level since October 2018
* Valuations getting stretched, Topix at 14 times earnings
* Constructors gain after Maeda takeover bids
* Toshiba machine jumps on bids by activist-backed fund
By Hideyuki Sano
TOKYO, Jan 20 (Reuters) – Japanese shares edged higher to 15-month highs on Monday on strong U.S. housing data and investor optimism after last week’s U.S.-China trade deal, with take-over bids boosting some in the construction and machine sector.
The Nikkei share average rose 0.18% to 24,083.51, its highest close since October 2018. The broader Topix gained 0.50% to 1,744.16.
The gains came on the back of Wall Street’s record close on Friday after data showed U.S. homebuilding surged to a 13-year high in December.
The market was also underpinned by the signing of an interim trade deal last week between the world’s two largest economies.
“Considering that last year people were talking about the possibility of trade talks breaking down, it is a huge relief that we have had a deal,” said Masahiro Ayukai, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Still, given that the market has risen almost 20% since early August, even as corporate Japan’s profits outlook has hardly improved, many investors are turning cautious.
The Topix is now trading more than 14 times above expected earnings, compared with below 11 times at the start of last year.
Trade was slow, with the turnover at the Tokyo Stock Exchange’s main board falling to about two-thirds of the average over the past year and the lowest level so far this year.
Maeda Road Construction jumped 19.1% after its parent and mid-tier constructor Maeda Corp launched a take-over bid for the road builder, which is resisting the move by its parent firm.
Maeda Corp also rose 6% while speculation of more consolidation in the crowded construction industry boosted other firms in the sector.
The Tokyo Stock Exchange’s construction company index rose 1.3% to become the top performer. Nippo, which has strength in paving work, rose 8.5%.
In another fight over corporate control, Toshiba Machine Co soared 18.9% as a fund backed by veteran activist investor Yoshiaki Murakami planned a takeover bid for the former subsidiary firm of industrial conglomerate Toshiba Corp .
Toshiba Corp now owns just over 2% of Toshiba Machine shares.
Shares of Toshiba Corp fell 3.6% after the company found possible accounting irregularities at a wholly owned subsidiary, prompting it to revise past financial statements.
Chip-related shares were riding high, with optimism on the industry getting another boost last week following upbeat earnings from Taiwan Semiconductor Manufacturing Co Ltd (TSMC).
Taiyo Yuden added 3.2% while Disco rose 2.8%, and Nidec added 2.8%. (Reporting by Tokyo Markets Team; Editing by Subhranshu Sahu)