Battered Nikkei falls to two-month low but pares loss

By Elaine Lies and Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average fell more than 4 percent to a two-month low on Friday before pulling back slightly, caught up in a global equity sell-off triggered by Europe’s debt crisis.

Exporters such as Canon Inc (7751.T: ) fell in active trade as the euro came under pressure, while shares with heavy exposure to China such as construction machinery maker Komatsu (6301.T: ) slid as Shanghai shares (.SSEC: ) lost ground.

Nintendo Co (7974.OS: ) tumbled nearly 8 percent after the game console maker forecast a second straight year of smaller profits as sales of its Wii console slow.

U.S. stock exchange officials were investigating whether erroneous trades caused a sudden slump in share prices that wiped nearly $1 trillion off U.S. equity values at the peak of the previous day’s sell-off.

“There were a lot of issues in New York, including possible erroneous trades, that added up to a pretty unpleasant feeling,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

“There’s been a lot of flight from risk over the last few days and now we’re seeing some short-covering and bargain-hunting. But it’s hard to tell what will happen until we see Wall Street tonight.”

The benchmark Nikkei (.N225: ) fell 3.1 percent or 331.10 points to 10,364.59, and has lost 6.3 percent in a holiday-shortened two-day trading week.

The Nikkei has erased this year’s gains, which just a month ago took it to an 18-month high, but is above the year’s low of 9,867.39 hit on February 9.

Traders were divided on where the market may go next, with some mindful of the darkest days of the financial crisis.

“The Greece debt crisis is reminding investors of what happened after Lehman Brothers’ collapse. A failure by one financial institution ended up triggering a ripple effect on the global economy,” said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.

But others noted increasing technical signals that the Nikkei may be oversold.

Its relative strength index (RSI) stood at 34, the lowest since November 2009, with anything from 30 and below in oversold territory. The Nikkei has also fallen through its lower Bollinger Band.

The Nikkei managed to close above its 200-day moving average at just over 10,300 after briefly falling below it, a level that market players said was likely to become a support.

“People were expecting an adjustment anyway but I think most of them thought it would stop around 10,600,” said Kenichi Hirano, operating officer at Tachibana Securities.

“When the economy’s on a recovery track, as it is right now, it’s hard to imagine the Nikkei staying much below the 200-day moving average for long. It just isn’t logical.”

RESULTS, DATA

Investors will now be watching U.S. jobs data as well as a euro zone summit on the Greek crisis later in the day.

Some in the market said that short-covering could emerge on Wall Street should the jobs data show signs of economic recovery. But others said that the murky nature of Thursday’s trading meant Wall Street moves were extremely hard to predict.

The euro was just under 117 yen, up 2 percent, after shedding around 10 yen at one point the previous day.

Digital camera maker Canon lost 3.9 percent to 4,055 yen and chip-tester maker Advantest Corp (6857.T: ) shed 3.7 percent to 2,252 yen. Kyocera Corp (6971.T: ) dropped 3.9 percent to 8,750 yen and Honda Motor Co (7267.T: ) fell 2.6 percent to 3,030 yen.

Shanghai shares fell 1.6 percent, off an earlier low after falling 2.7 percent, with long-standing concerns about government tightening weighing on the market.

Komatsu lost 2.6 percent to 1,761 yen and shipper Nippon Yusen (9101.T: ) shed 3.9 percent to 350 yen.

Fast Retailing (9983.T: ) fell about 6 percent to 13,040 yen, the top drag on the Nikkei 225, after it said same-store sales at its Uniqlo casual-clothing chain fell 12.4 percent in April from a year earlier as cool weather hurt sales of spring items.

A hefty 3.1 billion shares traded hands on the Tokyo exchange’s first section, its heaviest volume in about 4 months, with declining stocks outnumbering advancing ones by more than 17 to 1.

After the bell, Toshiba Corp (6502.T: ), the world’s No.3 chipmaker, forecast its profit to more than double this year, beating expectations, boosted by brisk chip demand and cost cuts.

Panasonic Corp (6752.T: ) bounced back to a quarterly profit on cost cuts and strong flat TVs sales, but cited yen strength and tough competition in projecting a smaller-than-expected profit this year.

Stock Market Money

(Reporting by Elaine Lies; Editing by Edwina Gibbs)

Battered Nikkei falls to two-month low but pares loss