Nikkei hit by profit-taking, Goldman suit rattles

By Masayuki Kitano

TOKYO (BestGrowthStock) – Japan’s Nikkei average slid 1.7 percent and hit a three-week low on Monday, as investors booked profits on worries that fraud charges against Goldman Sachs may increase the likelihood of tighter U.S. financial regulation.

Market players said the Nikkei was ripe for profit-taking after surging to an 18-month peak earlier this month, in a rally that spurred worries the market may have risen too far, too fast.

The Nikkei posted its biggest one-day percentage drop in two months but trading volume was subdued, with about 2.0 billion shares changing hands on the Tokyo exchange’s first section, the lowest in two weeks.

“There had been signs of overheating in the market, and on top of that came concerns that the issue of financial regulation may gain momentum in the United States,” said Mitsushige Akino, chief fund manager for Ichiyoshi Investment Management Co Ltd.

Fuelling such worries was news that the Securities and Exchange Commission charged Goldman Sachs with fraud over its handling of a debt product tied to subprime mortgages.

The lawsuit may make it more difficult for the industry to beat back calls for reform as lawmakers in Washington debate a financial regulation overhaul.

Although market expectations for an improvement in Japanese corporate earnings are likely to lend the market support, there was little question that Tokyo shares were in a pull-back phase, Akino said.

“The question is how steep it will be and how long it may last, and that will likely hinge on developments related to U.S. financial regulation,” Akino continued.

The Nikkei fell 1.7 percent to a three-week closing level low of 10,908.77 The Nikkei also hit a three-week intraday low of 10,878.99 at one point.

The broader Topix index fell 1.8 percent to 970.84 (.TOPX: ).

NIKKEI BELOW 25-DAY AVERAGE

The Nikkei dipped below its 25-day moving average at around 11,050, pointing to the possibility of a further correction in the near-term especially after MACD, another technical indicator, turned bearish last week.

Initial support lies near 10,800, roughly the 38.2 percent retracement of a two-month rally that started in early February and pushed the Nikkei up to an 18-month peak of 11,408.17 in early April. Below that the 50 percent retracement of that same rise lies roughly around 10,600.

“I think the Goldman problems are being used on Wall Street as an excuse to take profits, so this alone may not have such a significant impact,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

“What’s of longer-term concern is the lingering threat of tighter financial regulation, which is worrying hedge funds in particular and causing them to pull back from the market a bit.”

Air travel related shares slid after large parts of Europe enforced no-fly rulings for a fourth day on Sunday because of a huge ash cloud from an Icelandic volcano that has caused the worst air travel chaos since the September 11 attacks.

Major travel agency Kinki Nippon Tourist Co Ltd (9726.T: ) lost 6.1 percent to 92 yen and All Nippon Airways Co (9202.T: ) fell 2.4 percent to 283 yen.

With the Japanese results season moving into high gear from next week, investors were sensitive to any news about earnings.

Major game software development company Konami Corp (9766.T: ) slid 6.1 percent to 1,804 yen after it slashed its operating profit estimate for the financial year that ended in March to 18.5 billion yen ($200.7 million), down 38 percent from its previous forecast.

Bucking the broader trend, Hitachi (6501.T: ) edged up 0.3 percent to 380 yen after the Nikkei business daily said the electronics maker’s operating profit likely exceeded 160 billion yen ($1.74 billion) in the year ended March 31 thanks to robust demand for TVs, power plants and railway systems.

Japan Tobacco (2914.T: ) fell 2.6 percent to 319,000 yen after Britain’s consumer affairs watchdog fined its British unit Gallaher as part of broad fines against two tobacco firms and nine retailers accused of fixing prices on tobacco products between 2001 and 2003.

Gallaher, Imperial Tobacco (IMT.L: ) and nine retailers were fined a record 225 million pounds ($349 million). Of that, Gallaher was fined 50 million pounds.

Stock Market Money

(Additional reporting by Elaine Lies; Editing by Joseph Radford)

Nikkei hit by profit-taking, Goldman suit rattles