(Reuters) – Japan’s Nikkei average closed at an 18-month high for the third straight session on Monday, buoyed by strong U.S. jobs data that suggested economic recovery is taking deeper hold, though earlier gains were pared as investors locked in profits.

Japan

U.S. employers created jobs at the fastest pace in three years, news that pushed the yen to a seven-month low against the dollar and helped the Nikkei forge above a 38.2 percent retracement of its slide from a 2007 peak to its 2008 trough.

But Fast Retailing (9983.T) slid 10.6 percent, its biggest one-day loss since January 2007, after the company said its Uniqlo casual-clothing chain’s same-store sales slid 16 percent in March as cold weather hurt sales of spring clothing.

“Gains are being limited by a bit of profit-taking, based on the sense that the Nikkei may be a little overstretched and the fact that this long-awaited jobs news is finally behind us,” said Hiroaki Osakabe, fund manager at Chibagin Asset Management.

Technical indicators such as MACD as well as daily and weekly Ichimoku charts show the Nikkei is in an uptrend.

But the Nikkei’s relative strength index (RSI) has risen to 76, well above levels at which the market is considered overbought, and on daily charts it has broken through its upper Bollinger Band, a move that can signal a correction, albeit often slight.

The benchmark Nikkei .N225 hit the day’s high of 11,408.17 within minutes after the opening and pared gains steadily afterwards. It closed up 0.5 percent or 53.21 points at 11,339.30.

The broader Topix gained 0.6 percent to 995.68 after earlier rising as far as 996.97, its highest in 18 months.

But Nagayuki Yamagishi, investment strategist at Mitsubishi UFJ Securities, played down worries that the Nikkei’s rally was looking overstretched.

“As long as it rises along with gains in the five-day moving average, an extreme sense of overheating is unlikely to emerge,” said Yamagishi. The Nikkei has mostly moved above its five-day moving average since early March.

Yamagishi said the Nikkei may face resistance at 11,600, adding that trade just above that level has been relatively sparse in recent years.

If that level is breached, however, the Nikkei could set its sights on 12,000, Yamagishi said.

In terms of retracement levels, the next major level is the 50 percent retracement of the 2007 to 2008 sell-off near 12,650.

SHARP UP, FAST RETAILING TUMBLES

Investors were also reluctant to bid the Nikkei much higher amid market concern that the rise in private-sector hiring could prompt the Federal Reserve to raise the discount rate again on Monday when it holds a meeting, an issue that also gave the dollar some support.

On February 18, the Fed surprised the market when it hiked the discount rate by a quarter point to 0.75 percent.

But other market players said they felt the chance of a major interest rate hike, while perhaps a bit more possible than before, still was unlikely to occur before late this year.

Sharp Corp (6753.T) rose 3.3 percent to 1,249 yen. It plans to start making advanced 3D displays this year that require no special glasses for cellphones and other mobile devices, betting demand for 3D images will grow beyond movie theatres and living rooms to portable machines.

The Nikkei business daily also reported on Monday that Sharp plans to diversify into the electronic signboard business by offering 52- and 60-inch LCD panels that can be assembled into large displays at low cost.

Fast Retailing tumbled 10.6 percent to 14,920 yen and was the biggest decliner on the Nikkei 225.

The slide in March sales snapped a trend of generally robust growth since 2008 on the back of hit products like its “Heattech” line of basic garments made of heat-retaining fabric.

Softbank Corp (9984.T) shares fell 3.9 percent, the second-biggest loser among Nikkei 225 stocks, to 2,247 yen on news that Japan’s government planned to make it easier for mobile phone users to switch operators while keeping the same phone.

The move is expected to encourage some subscribers to switch to NTT DoCoMo (9437.T), which has the strongest coverage area, and hurt iPhone provider Softbank, whose network is not as strong.

NTT DoCoMo shares gained 0.8 percent to 144,200 yen.

Volume fell off, with 1.8 billion shares changing hands on the Tokyo exchange’s first section, below the 2 billion threshold that market players consider a sign of active trade.

Advancing shares outpaced declining ones by over 2 to 1.

(Additional reporting by Masayuki Kitano; Editing by Chris Gallagher)