Nikkei hits 10-wk closing low, yen strength weighs

Japan's Nikkei average fell 2.2 percent to a 10-week closing low on May 17 as the euro's tumble to a four-year trough chilled investor sentiment and fanned worries that the eurozone's fiscal woes could slow global economic growth.

Exporters such as Canon Inc were hit as the yen advanced, while trading houses were hurt by a fall in metals prices and China-linked shares such as Komatsu by a drop in Shanghai stocks.

Astellas Pharma pared losses and briefly turned positive after Japan's number two drugmaker agreed to buy US biotech OSI Pharma for $4bn in cash that allows it to add OSI's blockbuster cancer drug Tarceve to its line-up.

The euro marked a four-year low against the greenback earlier as investors worried that harsh spending cuts mandated by a bailout plan may choke off a fragile recovery in the 16-country eurozone.

“Fundamentally, the worry is really that the fiscal situation in the southern European states will hit the European economy, and then the global economy,” said Takashi Ushio, head of the investment strategy division at Marusan Securities.

“This would affect exporters not only in Japan but also China, raising fears that Chinese economic growth could cool too.”

 The benchmark Nikkei slipped 226.75 points to 10,235.76 after briefly falling nearly three percent to as low as 10,158.30, its lowest since early March. The broader Topix fell 1.7 percent to 920.43.

The Nikkei fell below its 200-day moving average, currently around 10,350, for the first time in over a week, with the next target at 10,000, a key level of psychological support.

Market players said that while a 61.8 percent retracement of the Nikkei's rise from a Nov. 27 2009 low of 9,076.41 to its 18-month high of 11,408.17 on April 5 comes in at around 9,960, this is a far less significant support than the Nikkei's 2010 low of 9,867.39 on February 9.

“There's a lot of nervousness still about the tough fiscal situation in the eurozone, and while Japanese earnings were good there's a lot of uncertainty about what lies ahead over the next year, especially given the stronger yen,” said Hiroichi Nishi, general manager at the equity division of Nikko Cordial Securities.

The dollar fell 0.4 percent to just over 92 yen and the euro lost 0.7 percent against the Japanese currency, although both were off earlier lows. Investors fret about a stronger yen because it eats into exporter profits when repatriated.

Canon Inc lost 1.7 percent to 3,975 yen, Sony Corp fell 4.5 percent to 2,817 yen and chip tester maker Advantest Corp lost 4.1 percent to 2,193 yen.

Shanghai weighs
Market players said additional downward pressure came from steeper falls in many Asian share markets, with Shanghai down 4.3 percent and the MSCI Asia ex-Japan index down 3.6 percent.

“This is also putting a real chill into investor sentiment,” said Noritsugu Hirakawa, a strategist at Okasan Securities.

China-linked shares suffered, with Komatsu, the world's second-largest maker of earthmoving equipment, down 2.2 percent to 1,678 yen after earlier falling as far as 1,667 yen – its lowest since last November. Hitachi Construction fell 3.3 percent to 1,791 yen.

Metals prices extended losses as fears over Europe's debt crisis drove investors out of risky assets, with trading houses suffering in turn.

But there were a handful of gainers, mostly so-called “defensive” shares such as utilities.

NTT jumped 3.5 percent to 3,855 yen after Japan's largest telecom firm said it would cancel all of its 251 million treasury shares, or about 16 percent of shares outstanding, over two years.

Trade was moderate, with 2.6 billion shares changing hands on the Tokyo exchange's first section. Declining shares outnumbered advancing ones by more than 7 to 1.

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