Nikkei marks 11-week closing low as hit by euro fall

By Elaine Lies

TOKYO (BestGrowthStock) – Japan’s Nikkei average fell 0.5 percent to a nearly three-month closing low on Wednesday as worries about tighter U.S. and German financial rules rattled markets, spurring selling in the euro and other riskier assets.

But short-covering helped the benchmark pare losses that earlier took it down nearly 2 percent.

Germany’s sudden move to ban naked short selling in some securities and news that several Republicans will vote with Democrats to wrap up debate on sweeping financial reform sent U.S. stocks (Read more about the stock market today. ) lower.

Naked short selling is when a trader sells short a financial instrument he does not possess, betting that its price will fall, without first borrowing the instrument or confirming if it can be borrowed.

“The concern is that the tighter regulations could spread throughout Europe, and this of course has spurred risk aversion,” said Toshiyuki Katayama, a market analyst at Monex Inc.

Analysts said Germany’s ban has left foreign exchange as the only market where investors feel free to bet against European assets, with euro moves dictating moves in the Nikkei as well.

And a few suggested the main issue was actually one of confidence, with investors hoping for different moves.

“What markets really wanted to hear from authorities, especially in Europe, was some sort of statement strongly in support of the euro framework,” said Hideyuki Ishiguro, a strategist at Okasan Securities.

“Instead, there was this — and the disappointment set off selling.”

The benchmark Nikkei (.N225: ) lost 55.80 points to 10,186.84 after earlier falling nearly 2 percent to 10,041.93, the lowest since mid-February and well below its 200-day moving average of around 10,350.

Okasan’s Ishiguro said earlier selling tested psychological support at 10,000 and short-covering emerged after it held. Should this level break, the next support is around 9,867, the year’s low hit on February 9.

The Nikkei’s relative strength index (RSI) fell to 35. Anything from 30 on down is seen as oversold.

But longer-term movement indicators, such as MACD, still show no sign of turning upwards.

AVOIDING RISK

Analysts said the situation remained volatile, particularly in regard to the euro.

“Germany’s move to regulate naked short selling has heightened uncertainty about the trading environment of financial markets, leading investors to avoid risks,” said Yumi Nishimura, deputy general manager at Daiwa Securities Capital Markets.

A slight recovery in the euro after it fell to a four-year low against the dollar helped stocks pare losses, with some exporters turning positive.

The euro was flat against the yen at 112.11 and had edged up minutely against the dollar to $1.290. But the dollar was down 0.3 percent against the yen at 91.97 yen.

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

Digital camera maker Canon Inc (7751.T: ) fell 1.1 percent to 3,930 yen and chip tester maker Advantest Corp (6857.T: ) lost 0.6 percent to 2,183 yen, both well off earlier lows. Sony Corp (6758.T: ) rose 2.7 percent to 2,911 yen on short-covering after two days of falls this week.

Banks pared losses as well. Mizuho Financial Group (8411.T: ) was flat, Sumitomo Mitsui Financial Group (8316.T: ) lost 0.6 percent to 2,725 yen. Top lender Mitsubishi UFJ Financial Group (8306.T: ) turned positive, gaining 0.7 percent to 452 yen.

Japan’s largest bank by assets said on Tuesday it had returned to profit in the past year due to smaller writedowns, but is targeting annual growth that is below market expectations.

Toyota Motor Corp (7203.T: ) shed 0.6 percent to 3,510 yen after the world’s biggest automaker said it plans to recall four models of its Lexus luxury car in Japan due to steering problems, its latest move in a series of massive recalls.

Trade was moderate, with 2.5 billion shares changing hands on the Tokyo exchange’s first section. Declining shares outnumbered advancing ones by more than 2 to 1.

Investing Analysis

(Additional reporting by Aiko Hayashi; Editing by Michael Watson)

Nikkei marks 11-week closing low as hit by euro fall