Nikkei falls 3 percent on Europe woes

By Aiko Hayashi

TOKYO (BestGrowthStock) – Japan’s Nikkei average dropped 3 percent to its lowest close in six months on Tuesday, as the euro fell (Read more about the trembling euro. ) further on worries that Europe’s woes now included the health of some banks in addition to sovereign debt problems.

The Nikkei’s slide was part of a broad sell-off of risk assets including other Asian shares, oil and higher yielding currencies.

It was triggered in part by the Bank of Spain’s take over of a small savings bank, and exacerbated by a report that North Korean leader Kim Jong-il has ordered his military to be on a combat footing.

MSCI’s broadest measure of Asia-Pacific shares outside of Japan declined nearly 4 percent.

“The fallout on the financial system from the euro zone debt crisis was what the market had feared the most and that’s happened,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management.

“To add insult to the injury, we now have the Korean news. The market tends to react differently to this type of news depending on the day’s sentiment, and it’s in a position to take everything negatively.”

The benchmark Nikkei fell 3.1 percent to 9,459.89, its lowest finish since November 30. It has lost more than 16 percent since hitting an 18-month high of 11,408.17 in early April.

The broader Topix fell 2.3 percent to 859.82.

The Nikkei’s relative strength index (RSI) has fallen to around 24, its lowest since late November. Anything below 30 is considered oversold.

The Nikkei’s next target lies around its November low at 9,076, which is a bit below the level of a 50 percent retracement of its 2009-2010 rebound.

Market jitters come despite recent indications of U.S. and global economic growth. Sales of previously owned U.S. homes rose more than expected in April to a five-month high, an industry group said on Monday.

Heavy selling of futures was dragging the overall market lower, with foreign investors, likely from Europe, thought to be some of the biggest sellers, analysts said.

Other market players said it appeared that some investors, including European and Asian investors might be pulling out of the market to cut back on risk.

“We’re also unlikely to see the same sort of big buying from foreign investors that we saw earlier this year, since many that had to buy at that point such as pension funds have already reached their investment goals,” said Kenichi Hirano, operating officer at Tachibana Securities.

EXPORTERS HURT

The euro slipped 0.9 percent to around 110.35 yen. Many Japanese exporters have set their assumption rates for the currency pair at 120-125 yen.

Tokyo Electron Ltd dropped 4.9 percent to 5,070 yen and Kyocera Corp shed 3.2 percent to 7,800 yen.

Shares of Canon Inc declined 2.7 percent to 3,610 yen. The company said it will freeze plans to develop home-use flat panel televisions based on SED (surface-conduction electron-emitter display) technology.

Textile firm Toray Industries tumbled 8.4 percent to 457 yen after it said would raise $1.2 billion from the sale of new and existing shares.

But shares of Renown Inc surged 26.2 percent to 241 yen after Chinese textile group Shandong Ruyi said it will buy a 41 percent stake in the Japanese apparel maker, the latest in a series of investments by Chinese firms in Japan.

That brought the stock’s gains this week to about 70 percent after weekend media reports of the deal.

Dainippon Sumitomo Pharma jumped 5.2 percent to 715 yen after Credit Suisse hiked its rating on the medium-sized drugmaker to “outperform,” saying its shares seem oversold.

Trade was moderate, with 2.4 billion shares changing hands on the Tokyo exchange’s first section. Declining stocks outnumbered advancing ones by nearly 6 to 1.

Stocks

(Additional reporting by Elaine Lies; Editing by Edwina Gibbs)

Nikkei falls 3 percent on Europe woes