Nikkei drops nearly 4 percent on euro zone woes

By Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average plunged nearly 4 percent on Monday, marking its biggest daily drop in 14 months as investors, spooked by debt woes in Hungary and the euro’s fall to a more than eight-year low against the yen, sold shares across the board.

Exporters such as Canon Inc (7751.T: ) took a beating, while commodities-linked shares dropped after oil and copper prices tumbled on Friday, with disappointing U.S. jobs data adding to doubts about the global economy.

Shares of Hitachi Ltd (6501.T: ) tumbled 7 percent after reports that a 7.5 billion pound ($10.9 billion) UK train deal may be canceled as Britain’s new government tries to cut down on spending.

Worries that Europe’s sovereign debt troubles could spread reignited after a Hungarian official said the country was at risk of a Greek-style crisis, sending the euro tumbling.

But Hungary’s government said on Saturday it aimed to meet this year’s budget deficit target.

“The jobs data may have changed market sentiment a bit because the numbers for this important indicator showed what people have been suspecting for a while, that the U.S. economic recovery may be slowing a little,” said Hiroaki Osakabe, fund manager at Chibagin Asset Management.

“Then you have this combined with signs that the euro zone debt problems may be very deep-rooted. Both of these put together are sparking selling.”

The benchmark Nikkei (.N225: ) closed down 3.8 percent at 9,520.80, its biggest daily percentage slide since late March 2009, after falling as much as 4 percent at one stage. Market players are eyeing the six-month low of 9,395.29 hit on May 27 as the next target.

The broader Topix (.TOPX: ) shed 3.5 percent to 859.21.

Trade was moderate, with some 2 billion shares changing hands on the Tokyo bourse’s first section, the highest volume since last Wednesday. Declining stocks overwhelmed advancing ones by nearly 40 to 1.

In Asia trade, the euro hit 108.06 yen, its lowest since late 2001, while the dollar inched down to trade around 91.30 yen.

Many Japanese exporters have set their currency assumption rates for euro/yen around 120-125 yen for the year to March, and for dollar/yen around 90-95 yen.

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

“Still, for now, dollar/yen is maintaining levels that can keep exporter companies from sharply changing their earnings outlooks,” said Kazuhiro Takahashi, general manager at Daiwa Securities Capital Markets.

“Depending on how the market will go from here, worries about risk-taking could run their course this week, after worse-than-expected U.S. jobs data unnerved investors and brought back the sentiment that appeared to start receding last week.”

Data showed the U.S. economy added 432,000 jobs last month, far fewer than the expected 513,000, with a large part of them being temporary hirings for the U.S. census.

The Nikkei’s relative strength index (RSI) fell to 35, with everything from 30 and below considered oversold. Its MACD, which had headed upwards after a bullish cross last week, began to dip again.

POLITICS AND POLICY

Investors will also keep an eye on politics and policy as Naoto Kan, Japan’s new leader, finalizes his cabinet. Media reports say Kan has chosen fellow fiscal conservative Yoshihiko Noda, currently deputy finance minister, for the top finance portfolio.

Support for the Democrats has jumped since Kan was voted in on Friday to replace Yukio Hatoyama, who quit as premier after just eight months in office, his ratings shredded by indecision and broken promises.

“There’s definitely expectations in the market that Kan may be a tougher fighter for a weak yen,” said Noritsugu Hirakawa, a strategist at Okasan Securities.

Digital camera maker Canon lost 5.3 percent to 3,675 yen and chip-tester maker Advantest Corp (6857.T: ) dropped 4.9 percent to 2,001 yen. Honda Motor Co (7267.T: ) slid 4.6 percent to 2,696 yen.

Oil and gas field developer Inpex (1605.T: ) sank 6.2 percent to 541,000 yen, while trading houses Mitsubishi Corp (8058.T: ) lost 5.4 percent to 1,864 yen and Itochu Corp (8001.T: ) shed 3.8 percent to 729 yen.

Hitachi fell to 345 yen. A Hitachi-led consortium was chosen as a preferred bidder in 2009 to build and maintain a fleet of intercity trains in Britain, but the final decision was postponed due to a general election, in which a new government was formed.

The Financial Times said last Friday that Philip Hammond, the new transport secretary, may cancel the deal given the spending squeeze at the transport department, which last week froze a separate train order. Japan’s Asahi newspaper on Monday also reported on a possible cancellation.

But Hitachi Zosen (7004.T: ) climbed 3.5 percent to 118 yen after the Nikkei business daily reported the heavy machinery maker and Finnish engine maker Wartsila (WRT1V.HE: ) will start developing fuel cells for manufacturers and other business users looking to reduce their carbon dioxide emissions.

The two firms already cooperate on engines for ships and power generation.

Stock Analysis

(Additional reporting by Elaine Lies; Editing by Chris Gallagher)

Nikkei drops nearly 4 percent on euro zone woes