Nikkei slips from three-week highs on investor economy worry

By Aiko Hayashi and Elaine Lies

TOKYO (BestGrowthStock) – Japan’s Nikkei average fell 1.1 percent on Thursday after the Federal Reserve’s caution on the U.S. economic recovery and souring near-term technicals prompted investors to take profits after a jump this month to three-week highs.

Asian stock markets slightly pared falls after data showing China’s annual economic growth eased to 10.3 percent in the second quarter, but inflation at the producer and consumer level also eased in June from May, reducing the need for further policy tightening.

The figures were announced just after the benchmark Nikkei ended morning trade, and saw S&P futures turn positive.

“The Nikkei is now stuck in a place where it’s hard to go either significantly higher or lower. Investors are trying to understand if signs of a slowdown in U.S. economic data show the recovery is in a lull, or if it’ll continue at a slow pace,” said Junichi Misawa, a senior fund manager at STB Asset Management.

He also said the China data initially helped the stock market trim earlier losses, but investors seem to lack a consensus on how to interpret it.

“Stock markets trimmed losses after the China data but they are under pressure again. That shows how fluid the markets’ views still are on China. If the data was too strong it would spark concerns and if it was too weak it could lead to worries about a slowdown,” Misawa said.

In light trade, the benchmark Nikkei shed 109.71 points to 9,685.53, after falling as low as 9,667.00 at one stage. On Wednesday, the index rose nearly 3 percent to its highest close since late June.

The broader Topix lost 1.6 percent to 856.60 on Thursday.

Market players said the Nikkei was slightly overstretched going into the day and it was no surprise it was taking a bit of a breather.

Minutes of the Fed’s June meeting showed policy-makers felt they should be ready to consider additional steps to boost the U.S. economy if an already softening outlook worsens, adding to worries stoked by a report showing June retail sales fell more than expected.

“A lot of investors are quite sensitive to anything the Federal Reserve says, and that kind of statement has chilled the recent rapid growth of market optimism,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

News from Japan’s central bank had little impact on the market. The Bank of Japan revised up its economic forecast for the current fiscal year but reiterated that it will keep monetary policy easy, with deflation likely to persist at least until early 2011.

The Nikkei hovered just above support provided by its 25-day moving average, currently at 9,680, and additional support on its daily Ichimoku charts at around 9,670, which was its kijun-sen.

The kijun-sen is an indicator of medium-term trends that can be either support or resistance but is currently pointing sideways, while Ichimoku charts are popular with Japanese traders.

But other momentum indicators are mixed, with the Nikkei’s slow stochastic — a measure of how oversold the market is and whether it is in a short-term up or down trend — falling to just below overbought territory, indicating a near-term dip is likely to be in store. Yet its MACD continues to rise after a bullish cross.

Resistance for the Nikkei stood near 9,760, a level where a downward trendline, drawn from the April 27 and June 21 peaks, comes in.

Trade was light on the Tokyo exchange’s first section, with 1.5 billion shares changing hands, the lowest volume in more than a week.

Declining stocks outnumbered advancing ones by nearly 8 to 1.

CARS, EXPORTERS, TECH

Automakers lost ground after helping boost the broader market on Wednesday, when shares of Japan’s top three automakers all jumped about 4 percent.

Shares of Nissan Motor Co, Japan’s No.3 automaker, slid 3.3 percent to 648 yen after it said it would idle two U.S. assembly plants for three days starting on Thursday because of a shortage of electronic control units from Hitachi Ltd.

Nissan said earlier this week it would halt part of its vehicle production in Japan for three days starting on Wednesday after Hitachi said delivery of engine control units was running behind schedule.

Top automaker Toyota Motor Corp slid 2.3 percent to 3,175 yen and Honda Motor Co, the No.2, retreated 2.2 percent to 2,682 yen.

Techs and exporters, some of the main impetus behind the Nikkei’s climb on Wednesday, fell broadly as well, with gains by the yen adding weight.

Oki Electric Industry lost 5.2 percent to 73 yen after Goldman Sachs downgraded it to “sell,” citing a possible undershooting of guidance for the business year ending next March.

Takeda Pharmaceutical fell 1.4 percent to 3,965 yen as a rival to Takeda’s flagship diabetes drug won support from a U.S. panel of health advisers. The panel said GlaxoSmithKline Plc’s diabetes drug Avandia should be allowed to stay on the market.

(Editing by Michael Watson)

Nikkei slips from three-week highs on investor economy worry