Nintendo Co. Ltd. briefly zipped past Sony Corp. in market capitalization on Monday to become one of Japan's 10 most valuable companies as it elbows the PlayStation maker out of its decade-long dominance of the game industry.

Nintendo joined global household names such as Toyota Motor Corp., Honda Motor Co. and Canon Inc. on the top-10 list before its shares erased earlier gains and ended the day lower.

The Kyoto-based company finished in the 11th place by market value, just above Panasonic maker Matsushita Electric Industrial Co. and below Sony. Those companies, the world's largest and second-largest consumer electronics makers, both have sales more than eight times as big as Nintendo's.

It is becoming quite clear that Nintendo is taking back its market share from Sony in the console market while well defending its stronghold of portable games, Mizuho Securities analyst Takeshi Koyama said.

Nintendo's Wii game console has outsold Sony's PlayStation 3 by three to one in Japan and by more than two to one in the United States so far this year, according to game magazine publisher Enterbrain and research firm NPD.

Demand for its DS handheld game players also far outstripped that for Sony's PlayStation Portable.

Koyama said, however, that investors should watch out for a possible pull-back after two year-long bull runs.

This is one of those companies that is not exactly making daily necessities. One negative factor and shares could take a dive. We need to be careful in dealing with shares like this, Koyama said.

Nintendo's shares rose as high as 46,350 yen, a record high, in the morning session, boosting its market value to 6.57 trillion yen ($53 billion) and narrowly surpassing Sony's market capitalization.

VIRTUOUS CIRCLE

I don't think this is a case of Sony being in bad shape as a company. Rather, Nintendo is doing well with the Wii, said Soichiro Monji, chief strategist at the equity management department of Daiwa SB Investments.

However if you look at Nintendo's price-to-earnings ratio it is quite high. So I think the stock has largely factored in some of the future growth.

Nintendo closed down 0.8 percent at 45,100 yen, bringing down its market value to 6.39 trillion yen, a touch below Sony's 6.48 trillion yen.

Based on the closing price, Nintendo's prospective price-earnings ratio comes to 36.5, compared with 20.3 for Sony.

Sony shares have put on 66 percent over the past two years, outperforming the Nikkei average, which rose 57 percent. But Nintendo shares soared nearly fourfold over the same period.

Nintendo has offered a slew of innovative and easy-to-use game software such as Brain Age and Nintendogs for its hardware in recent years, broadening the game-playing population beyond young males to women and the elderly.

Sony, which has dominated the $30 billion game industry over the past decade with its PlayStation and PlayStation 2, saw a slow start for the PS3, launched late last year, due mainly to its high prices and lack of attractive software titles.

Strong sales of the Wii and DS have prompted third-party software makers to actively develop new titles for the Nintendo machines, creating a virtuous circle for the company known for such game characters as Mario, Donkey Kong and Pokemon.

Sega Sammy Holdings Inc., for example, plans to almost double the number of new software titles for Nintendo hardware to 49 in the year to March 2008, while cutting the number of new titles for Sony gear by 45 percent to 42.

Sony's game unit posted an operating loss of 232 billion yen in the year ended March, hit by heavy start-up costs for the PS3.

The division, however, is estimated to report a much smaller loss for the current business year, and profits at its mainstay electronics unit will likely grow sharply, led by brisk demand for its Bravia liquid crystal display televisions.

($1=123.88 Yen)

Japan Electronics Nintendo Sony