Nikkei edges lower, stronger yen spurs profit-taking

By Antoni Slodkowski and Chikafumi Hodo

TOKYO (BestGrowthStock) – Japan’s Nikkei average ended 0.3 percent lower on Tuesday as renewed yen strength encouraged profit-taking but market players said underlying sentiment that took the benchmark to six-month highs last week remained bullish.

M&A news saw airconditioner maker Daikin (6367.T: ) slide almost 4 percent after Bloomberg news said it was in talks to buy U.S. rival Goodman Global Group in a deal that could be worth more than $3.6 billion.

But chip equipment maker Advantest (6857.T: ) jumped 3.7 percent after it made a $729 million buyout offer for U.S. rival Verigy Ltd (VRGY.O: ).

The Japanese currency has more risen than one yen to 82.62 yen per dollar since disappointing U.S. jobs data last week and a suggestion from the Federal Reserve that it could expand its bond buying if needed to help the economy.

The euro, weighed down by concerns about euro zone debt, has also eased against the yen.

“The yen’s firmness is putting pressure on the Nikkei. Precision machinery shares are especially under pressure due to the yen’s strength on the euro,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

“So far we are not overly worried about the yen’s recent recovery, but we’ll be more concerned should the yen approach 80 (against the dollar),” said Kuramochi.

The Nikkei (.N225: ) closed the day down 26.13 points at 10,141.10 in light trade, but remains not too far from a six-month high of 10,254.00 hit last week.

The broader Topix index (.TOPX: ) also shed 0.3 percent to 879.10.

The official China Securities Journal reported that China’s central bank may tighten credit which weighed on Chinese shares and in turn Tokyo equities in early trade.

But both markets later appeared to have shrugged off those concerns in a sign that investors were getting used to the idea that China may raise rates.

“Traders in Tokyo looked at China and thought that if those markets aren’t that worried, then we don’t need to worry either,” said Shoji Yoshigoe, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. Ltd.

Investors were also hesitant about taking large positions in the Nikkei ahead of the closely watched settlement of futures and options prices on Friday.

The settlement, known in Japan as the special quotation or “SQ,” is calculated from the opening prices of the 225 shares on the Nikkei average on the second Friday of the month.

Many investors appeared to have finished rolling over their positions to the March contract, a Tokyo-based options trader said, adding that he expects contracts expiring in December will settle around 10,050-10,300.

Some 1.7 billion shares changed hands on the Tokyo exchange’s first section, up from 1.48 billion hit on Monday when it was at its lowest for over a month, but below last week’s daily average of 1.81 billion.

Advancing issues outnumbered declining ones by almost 2 to 1.

“The underlying sentiment is still bullish, but volume is likely to stay low unless we see a clear break above 10,300 or 10,400 levels,” said Yoshigoe, adding that more retail investors would join the market above those levels.

Daikin fell 3.8 percent to 2,993 yen, reflecting investors concerns that the company may issue shares to finance such a deal.

Advantest, which counts Intel Corp (INTC.O: ) as a customer for its memory testing equipment, climbed to 1,866 yen, with Nomura Securities analyst Tetsuya Wadaki saying that it was a sensible move given the lack of growth opportunities in the tester market and Advantest’s ability to fund such a deal.

The rising yen has helped reignite a push by Japanese companies to snap up overseas assets and secure growth outside their sluggish domestic market. Outbound M&A doubled in the first nine months of 2010 to a total $31.5 billion.

(Editing by Edwina Gibbs)

Nikkei edges lower, stronger yen spurs profit-taking