Nikkei drops below key support to 7-month low

By Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average fell more than 2 percent to a seven-month low on Wednesday, with the benchmark breaking below a key support level and poised for its worst quarter since Lehman Brothers failed in 2008.

Charts painted a bleak picture, with the Nikkei’s MACD posting a bearish cross and its slow stochastic, which gives near-term signals on market trends, continuing its slide in oversold territory.

Global financial markets were facing pressure after data showed a steep fall in U.S. consumer confidence and a sharp downward revision to China’s leading indicators index.

Market players said there are many bets in options on Nikkei 225 futures with strikes of 9,250 and 9,000, and these levels are likely to provide support for the Nikkei.

After it pushed below key support of 9,378, a six-month low hit this month, downward momentum will likely pick up further, they said.

Some also said a level slightly above 9,000 — lows tested in both November and July 2009 — also likely provides solid support.

“The fact that the euro is staying near a nine-year low shows that fears about Europe’s financial system, which seemed to have run their course, has reemerged and that’s leading investors to avoid risk-taking,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

In Asia trade, the euro inched up slightly after striking an 8 1/2-year low of 107.33 yen on Tuesday, when it slid on concerns about European banks’ funding ability.

The benchmark Nikkei shed 2.1 percent to 9,366.54, and fell as low as 9,347.07, its lowest since December.

The broader Topix lost 1.5 percent to 839.49.

On Tuesday, the S&P 500 tumbled to its lowest level in eight months in a sell-off triggered by a wave of increasing alarm over the global economic outlook, including escalating doubts about the stability of Europe’s banks.

In Japan, the Nikkei is on course to book its worst quarter since October-December 2008 as European debt worries pushed investors to curb their willingness to bet on risky assets, including equities.

For the quarter ending Wednesday, the Nikkei has shed about 15 percent so far, compared with a 21 percent drop in the quarter that finished in December 2008, following the collapse of Lehman Brothers.

Shares of Tokyo Electron and other chip gear makers dropped after Wall Street fell on growing economic worries and the Philadelphia Semiconductor Index tumbled 4.6 percent on Tuesday.

Commodities-related firms slid after metals prices tumbled on weak U.S. economic data, worries over European bank financing and concerns over growth for China combined to dash hopes for a quick recovery.

Copper plunged more than 5 percent, zinc fell 7 percent and lead tumbled 8 percent.

Trading house Mitsui Mining & Smelting fell 4.1 percent to 237 yen.

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(Additional reporting by Elaine Lies; Editing by Michael Watson)

Nikkei drops below key support to 7-month low