Nikkei drops 2.6 percent on European debt worries

By Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average slid 2.6 percent on Wednesday, dragged down by exporters such as Kyocera (6971.T: ) after downgrades in Greece and Portugal’s credit ratings sparked fears the euro zone’s debt problems were spreading.

Investors punished shares of companies that reported disappointing earnings. East Japan Railway (9020.T: ) tumbled after the company announced a drop in annual operating profit and its earnings forecast fell short of expectations.

The Nikkei ended the day below its 25-day moving average, now around 11,100, and booked its biggest daily percentage fall in nearly three months, but analysts expect the benchmark index will find near-term support at 10,800.

Ratings agency Standard and Poor’s slashed Greet debt to junk status on Tuesday and also downgraded Portugal, fuelling concerns about euro zone economic stability and sending European and U.S. stocks (Read more about the stock market today. ) sharply lower.

“Investors now fear that credit woes which started in Greece could slow down the whole European economy,” said Masayoshi Yano, a senior market analyst at Meiwa Securities.

The benchmark Nikkei (.N225: ) closed down 287.87 points at 10,924.79, after falling as low as 10,882.40 at one stage. The broader Topix (.TOPX: ) fell 2 percent to 977.64.

Some 2.5 billion shares changed hands on the Tokyo exchange’s first section, the highest volume in more than a month. Declining stocks beat advancing ones by nearly 10 to 1.

After the closing bell, Honda Motor Co (7267.T: ), Japan’s No.2 automaker, said it expects a 10 percent rise in annual operating profit as demand in its biggest and most profitable U.S. market recovers from a multidecade low.

The stock ended the day down 1.5 percent at 3,285 yen.

NIKKEI SUPPORT SEEN AROUND 10,800

Market players expect the Nikkei to find near-term support at 10,800, roughly a 38.2 percent retracement of a two-month rally that started in early February and pushed it up to an 18-month peak of 11,408.17 in early April.

The index’s relative strength index has also fallen below 50 after rising to a high of 76 earlier this month. Anything from 70 and above is considered overbought while 30 or below is seen as oversold.

“There are investors who are willing to pick up stocks at lows because of high expectations for domestic corporate earnings. Japan’s earnings season won’t even hit its peak until after the long weekend,” said Fumiyuki Nakanishi, investment information manager at SMBC Friend Securities.

U.S. shares also posted their worst day in nearly three months on Tuesday following downgrades of Greece and Portugal, and as a grilling of Goldman Sachs on Capitol Hill heightened the possibility of financial reform. (.N: )

“Greece’s problems are unlikely to have negative a impact on the global economy, in my opinion, given the size of its GDP. The issue has been used as an excuse to sell stocks — you need to remember there are other concerns such as U.S. financial regulation and Goldman Sachs,” said Nakanishi.

EXPORTERS DRAG

Kyocera Corp (6971.T: ) shed 3 percent to 9,370 yen, while Advantest Corp (6857.T: ) dropped 5.2 percent to 2,386 yen and Tokyo Electron Ltd (8035.T: ) sank 3.7 percent to 6,170 yen.

Investors took profits on shares like industrial robot maker Fanuc Ltd (6954.T: ) that had rallied on better-than-expected profits or earnings guidance.

Fanuc dropped 5.3 percent to 11,050 yen to become the most actively traded stock by turnover on the main board, while copier and printer maker Konica Minolta Holding (4902.T: ) gave up 4.3 percent to 1,201 yen.

Mazda Motor Corp (7261.T: ), Japan’s No.5 automaker, fell 3.9 percent to 270 yen after its earnings forecast fell short of market expectations.

East Japan Railway dropped 6.4 percent to 6,250 yen. Operating income for the past financial year fell to 345 billion yen, hurt in part by lower highway toll fees.

But Sumitomo Heavy Industries (6302.T: ) climbed 1.5 percent to 616 yen after the shipbuilder raised its operating profit estimate for the past financial year by about 47 percent, citing robust demand from China and cost cuts.

Toray Industries (3402.T: ) rose 1.3 percent to 551 yen after the textile maker said it and German carmaker Daimler AG (DAIGn.DE: ) will jointly develop carbon fiber car parts.

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(Additional reporting by Rika Otsuka; Editing by Chris Gallagher)

Nikkei drops 2.6 percent on European debt worries