Nikkei drops from 2-month high

By Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average fell 1 percent on Thursday, off a two-month high hit the previous day, as property stocks like Mitsui Fudosan retreated on a brokerage downgrade and recent gainers like Canon lost ground.

A fall in the euro accelerated profit-taking in Japanese stocks, market players said, after a report saying Greece is not hopeful of aid from the March 25 European Union summit and it may seek aid from the International Monetary Fund in April.

“Selling in exporter shares sped up following a fall in the euro after Dow Jones’ report that Greece will ask for the IMF’s help, which sparked worries the country’s problems might not be contained within Europe,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

“In my view, the settlement price of Nikkei options and futures will likely be the index’s ceiling for now, weighed down by worries about China’s tightening policy and problems in Europe.”

The benchmark Nikkei lost 102.95 points to 10,744.03, falling from a two-month intraday high of 10,864.30 struck on Wednesday.

Nikkei futures and options contracts expiring in March have settled at 10,808.73, a figure that market players watch closely for clues on the future direction of the market.

The broader Topix index fell 0.7 percent to 940.79.

The euro dropped as low as 123.13 yen and fell as far as $1.3667 on trading platform EBS, before edging back to $1.3672, down 0.5 percent on the day.

Investors fret at about a stronger yen as it eats into exporters’ profits when repatriated.

Market players said Tokyo shares are still likely to be supported by improving corporate earnings, and the next major upside target is the mid-January high of 10,982.10. A rise above that would take the Nikkei to its highest in more than 17 months.

But with technical signals suggesting the market’s recent rally may have been too fast, the index may be poised for a further pull-back in the near term or may become stuck in a range for a while, they said.

The up-down ratio, which compares the number of shares that have risen against those that have fallen over a 25-day period, is now in over-bought territory, said Masayoshi Okamoto, head of dealing at Jujiya Securities.

“The question is how things will cool down. One possibility is a period of adjustment, with the Nikkei hovering around say 10,600 or so for a while and trading sideways,” he said, adding that a rapid pull-back to below 10,500 was also possible.

A Reuters poll this week showed that Japanese stocks are likely to peak in June and finish the year just slightly above current levels, at 11,000, as the boost to exporters from global economic stimulus measures starts to fade.

OVERSEAS INVESTORS

One supportive factor for Tokyo shares this year has been buying by overseas investors.

They have bought a net 1.8 trillion yen ($19.9 billion) in Japanese equities so far in 2010 even after selling a net 268.2 billion yen last week, Ministry of Finance data shows. That compares with net buying of just 28.7 billion yen for all of 2009.

Tetsuro Miyachi, general manager of Franklin Templeton Investments Japan Ltd’s investment planning department, said overseas investors are likely to be net buyers of Tokyo shares over the course of 2010.

Tokyo shares underperformed other stock markets last year and since many global investors are likely still underweight Japanese equities, they may try to raise their exposure, he said.

“Economic fundamentals are just so-so, but corporate earnings are improving rapidly, so from the standpoint of equities investment I think it is easy to buy,” Miyachi said.

PROPERTY STOCKS DRAG

Shares of real estate firms fell after Morgan Stanley lowered its view on the sector to “cautious” from “in-line.”

The brokerage also cut the rating on Mitsui Fudosan Co and Mitsubishi Estate Co to “underweight” from “equal-weight,” saying in a client note that it believes property stock prices have not discounted potential major risks.

Mitsui Fudosan shed 2.4 percent to 1,613 yen, while Mitsubishi Estate lost 3.8 percent to 1,476 yen. The real estate subindex slid 2.6 percent to become the top decliner among the subindexes.

Digital camera and office equipment maker Canon fell 2.8 percent to 4,025 yen, while Kyocera Corp slipped 2 percent to 8,560 yen and Shin-Etsu Chemical Co shed 2.7 percent to 5,140 yen.

Seiko Epson Corp dropped 4.5 percent to 1,485 yen after Credit Suisse downgraded its rating to “underperform” and cut its price target price, saying fixed costs remain a drag on earnings, especially in electronic devices, and expects losses to widen.

But shares of Toho Zinc, a nonferrous custom smelter specializing in zinc and lead, jumped 5.3 percent to 456 yen in active trade after it raised its operating profit forecast for the year ending this month to 7.5 billion yen ($83 million) from 6 billion yen.

The stock’s jump came also after news that CBH Resources’ board recommended an offer from Toho Zinc for half the group, which valued the whole group at A$274 million.

Some 2 billion shares changed hands on the Tokyo exchange’s first section, falling from Friday’s seven-week high, when volume was 2.8 billion shares.

Declining stocks outnumbered advancing ones by nearly 2 to 1.

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

Nikkei drops from 2-month high