Nikkei drops; options settlement spurs profit-taking

* Options settlement triggers profit taking

* Gains in Fast Retailing limit benchmark’s losses

* Nikkei falls 0.4 percent on the week

* Foreigners buy Tokyo stocks for 10th straight week

By Antoni Slodkowski and Ayai Tomisawa

TOKYO, Jan 14 (BestGrowthStock) – Japan’s Nikkei stock average fell
0.9 percent and away from 8-month highs on Friday, after a
surprisingly weak settlement of options for January and a
stronger yen against the dollar triggered profit-taking.

The Nikkei’s decline ran counter to early expectations for a
rise as brisk earnings from Intel Corp (INTC.O: ) lifted hopes for
technology spending, but market participants also said the
benchmark was ripe for profit-taking ahead of a three-day weekend
in the United States.

But losses were limited as Fast Retailing (9983.T: ), one of
the biggest Nikkei components on a weighted basis, surged 6
percent after it kept its annual earnings outlook intact despite
weak first-quarter sales and as Nomura Securities hiked its
rating. [ID: nTOE70D009]

Although it is unusual for settlements of just options to
have a big effect on the market, expectations of a strong
settlement following a surprisingly robust one for futures and
options last month were betrayed.

“It must have been a big negative surprise to most
people…especially those who had expected that the contracts
would settle higher like last month,” said Norihiro Fujito,
senior investment strategist at Mitsubishi UFJ Morgan Stanley
Securities.

In active trade, the Nikkei 225 stock average (.N225: ) fell
0.9 percent, or 90.72 points, to 10,499.04, and shed 0.4 percent
on the week.

The broader Topix lost 0.8 percent to 930.31.

Some market players said that many traders holding 11,000 yen
and 10,500 yen call options were particularly badly hit.

“This market is totally ignoring fundamentals. Those who
bought call options above 10,500 must be suffering big losses,”
said Fujito.

OVERHEATED

Market had also looked overheated on the charts, with the
Nikkei having pierced its upper Bollinger Band in the last five
trading sessions.

The Nikkei has gained some 2 percent this year and is up 15
percent since the start of November — a rally driven by foreign
funds which have boosted their weighting in Japanese stocks to
neutral from underweight.

Foreign investors were net buyers of Japanese equities for a
10th straight week, purchasing a net 265.6 billion yen ($3.2
billion) of Japanese stocks last week, data showed on Friday.

“More and more investors are selling bonds and buying
equities as risk appetite increases, but recently we’re also
seeing inflows from speculators that have made profits on surging
commodity prices,” said Hiroaki Kuramochi, chief equity marketing
officer at Tokai Tokyo Securities.

The Reuters-Jefferies CRB Index (.CRB: ), a global commodities
benchmark, hovered around 27-month highs on Thursday.

Volume was heavy, with 2.5 billion shares changing hands on
the Tokyo Stock Exchange’s first section.

Recent heavy volume shows institutional foreign investors
have came back to the Tokyo market, among them European pension
funds, market players said.

Japan’s prime minister appointed a fiscal hawk to a key post
and replaced his deputy in a cabinet revamp on Friday to cope
with a divided parliament and help rein in public debt, but the
market’s reaction was muted.

“The ruling party has to pass the budget first. We can only
begin thinking of the market implications of the reshuffle when
the ruling party is running parliament smoothly,” said Hidenori
Suezawa, chief strategist at Nikko Cordial Securities.
[ID:nTOE70C06W]

Chipmakers climbed on Intel’s strong results. Chip gear maker
Tokyo Electron Ltd (8035.T: ) gained 3.2 percent, while
semiconductor grinding and cutting equipment maker, Disco Corp
(6146.T: ) rose 3 percent.

A total of 937 issues declined while 581 issues advanced.
(Additional reporting by Shinichi Saoshiro; Editing by Edwina
Gibbs)