Nikkei slips off 1-month highs on profit-taking

By Aiko Hayashi and Elaine Lies

TOKYO (BestGrowthStock) – Japan’s Nikkei average slipped 1.2 percent on Tuesday as profit-taking emerged after a bounce to a one-month high the day before and foreign investors turned sellers.

Analysts said the market took a breather after recent rises, including last week’s gain of 3 percent, the best weekly performance in three months, as well as Monday’s surge, but that its essential upward trend looked unchanged.

The benchmark fell below a chart retracement level with euphoria over the yuan’s rise ebbing, but many saw support intact at around 9,800, the Nikkei’s 25-day moving average.

“Sentiment overall appears to have turned rather positive, now that it appears the euro may have bottomed out, and this can lead the market suddenly and sharply higher, the way we saw yesterday on the yuan news,” said Hideyuki Ishiguro, a strategist at Okasan Securities.

In light trade, the benchmark Nikkei (.N225: ) fell 125.12 points to 10,112.89, below a 38.2 percent retracement at 10,155 of the fall from its April high of 11,408.17 to its June low of 9,378.23.

The broader Topix (.TOPX: ) shed 0.9 percent to 894.56.

Some analysts said that the Nikkei needed to consolidate above 10,200, which falls a bit below the level of its 50-week moving average, to resume rising again.

“Breaking above this is extremely important, but we need a bit more market energy and volume to do so,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

“But today we’re seeing a lot of foreign selling. There’s no follow-through from yesterday.”

European investors were short-covering Nikkei futures on Monday, lifting the cash market as well, analysts said.

The yuan spot exchange rate on Monday rose to its highest since July 2005, sending Asian stocks to a five-week high on hopes for greater Chinese buying power.

But the euphoria faded later in the day, with Wall Street dipping, leaving the Nikkei — which market players said had risen mainly on short-covering in thin volume — vulnerable.

On Tuesday, China’s central bank set the yuan’s daily mid-point at the highest level since its revaluation in July 2005. But the Nikkei shrugged it off.

The Nikkei’s relative strength index (RSI) slipped to 54 after rising close to 60 on Monday, but its MACD continued to climb and few in the market thought any serious falls were in the offing.

“The market was boosted mostly by short-squeezing yesterday, with only some investors who grew optimistic about China’s economic outlook taking long positions,” said Hiroaki Kuramochi, chief equity marketing officer at Tokai Tokyo Securities.

“More gains now look fairly limited, also due to worries about the euro zone after news about BNP Paribas and Spanish banks.”

Ratings agency Fitch on Monday cut French bank BNP Paribas’ long-term international rating to AA- from AA, citing reliance on capital markets for a large part of its profits and a deterioration of asset quality in 2009.

Standard and Poor’s Rating Services also said on Monday it had raised its estimates for loan losses for Spain’s banking sector between 2009 and 2011 due to the faster depreciation of real estate assets on banks’ books.

EXPORTERS WEIGH

Shares of exporters ran out of steam and slid after helping lift the Nikkei on Monday.

Canon Inc (7751.T: ) fell 2.7 percent to 3,780 yen and Tokyo Electron Ltd (8035.T: ) dropped 3.6 percent to 5,620 yen. TDK Corp (6762.T: ) lost 2.3 percent to 5,430 yen.

Denso Corp (6902.T: ), a car parts maker affiliated with Toyota Motor Corp (7203.T: ), declined 1.8 percent to 2,622 yen after saying its joint venture plant in Guangzhou, China has halted production since Monday morning due to a labor strike.

The plant, Denso (Guangzhou Nansha) Co Ltd, has also halted supply of its fuel injection equipment and other products to Toyota, Honda Motor Co (7267.T: ) and other carmaker clients since Monday, Denso spokeswoman Yoko Suga said.

Tokyo Electric Power Co (9501.T: ), Asia’s biggest electric power company, edged up 0.1 percent to 2,431 yen after the Nikkei business daily reported that it is considering investing “tens of billions of yen” in a coal-fired power plant planned by Vietnam Oil and Gas Corp (Petro Vietnam). The plant is expected to start operations in the mid-2010s.

Trade was thin on the Tokyo exchange’s first section, with 1.7 billion shares changing hands, though that was up from last week’s four-month low just below 1.5 billion.

Declining shares outnumbered advancing ones, 987 to 529.

Stock Market Money

(Editing by Joseph Radford)

Nikkei slips off 1-month highs on profit-taking