Nikkei drops to historic low amid dismay in banking sector

The benchmark Nikkei index dropped below 8,000 before rallying slightly on Tuesday, a day after a tumble in British bank shares sent stocks reeling across global markets. Japanese shares were also hit by poor results for national carmaker Toyota.


Reuters - The Nikkei average slid 2.3 percent on Tuesday as deepening trouble in the global financial sector hurt bank shares such as Mizuho Financial Group, while a stronger yen sparked selling of exporters.

Traders said investors were taking their cues from a drop in U.S. stock futures, which were down about 1.4 percent after European shares were hurt by Royal Bank of Scotland's unveiling the biggest loss in British corporate history.

"A weaker euro against the yen amid European financial problems has a more direct impact on Japanese shares than those problems themselves, though uncertainty persists," said Yoshinori Nagano, chief strategist at Daiwa Asset management.

"For the next two to three months, hopes for economic steps by (U.S. President-elect) Barack Obama will surface from time to time. But once equity markets recover some ground on those hopes, they are bound to face grim reality again."

The benchmark Nikkei shed 191.06 points to 8,065.79, snapping a two-day winning streak, after moving below the 8,000 mark at one stage. The broader Topix fell 1.6 percent to 805.03.

"Investors picked up shares as soon as the Nikkei average broke below 8,000, limiting further losses, partly because they wanted to take a wait-and-see stance before the corporate earnings season heats up in Japan," said Yukio Takahashi, a market analyst at Shinko Securities.

Bucking the broader market, Toyota Motor Corp shares ended 2.3 percent higher after the world's top automaker said it would announce a new president as part of a reshuffling of top management as it struggles to cope with sliding global demand.

After the bell, the automaker said it had named Executive Vice President Akio Toyoda, a grandson of the company's founder, to head the company as its next president.

Yen hurts exporters, Obama hope loom

The euro fell 0.7 percent to 117.65 yen, while the dollar fell 0.3 percent to 90.36 yen. Sterling hit a record low against the yen after the impact of Britain's rescue plans quickly dissipated in the face of tumbling European shares.

Investors fret over a stronger yen as it curbs exporters' overseas profits when repatriated.

Among blue-chip exporters, Sony Corp shed 2.6 percent to 2,025 yen and Advantest Corp, the world's top maker of chip testers, tumbled 6.6 percent to 1,218 yen.

Shares of Toshiba Corp declined 3.7 percent to 396 yen after Mitsubishi UFJ Securities cut its rating on the electronics conglomerate to "4" from "3", warning of widening losses due to its struggling chip operations and weak economic conditions.

But shares of Toyota gained to 3,100 yen. Other large automakers also rose, with Honda Motor Co adding 1.9 percent to 2,130 yen and Nissan Motor Co gaining 0.9 percent to 327 yen.

"With Obama taking office today, investors picked up automakers as environment-related shares, expecting they will gain demand once again," said Takahashi at Shinko Securities.

Japanese banking shares fell on deepening worries about the global financial sector after Royal Bank of Scotland said it would report a 2008 loss of up to 28 billion pounds.

Mitsubishi UFJ Financial Group, Japan's top lender, shed 2.9 percent to 502 yen, while No.2 Mizuho Financial Group lost 6.2 percent to 228 yen. Sumitomo Mitsui Financial Group, the third-ranked bank, dropped 3.8 percent to 3,530 yen.

Still, Credit Suisse said it would raise the weighting for banks and other financials in its Japanese equity model portfolio.

"Our changes this time reflect our expectation that Mr Obama will focus initially on addressing the financial crisis, which will translate into a rebound among oversold Japanese financial stocks," Credit Suisse analyst Shinichi Ichikawa wrote in a note to clients.

Furukawa Electric Co Ltd, Japan's top aluminium products maker, dropped 6.6 percent to 355 yen after a newspaper ported it and Showa Denko were in the final stage of talks on merging their aluminium operations.

Showa Denko gained 3.2 percent to 131 yen. Both firms said nothing specific had been decided. Trade was light on the Tokyo exchange's first section, with 1.7 billion shares changing hands, compared with last week's daily average of 1.9 billion.

Declining stocks outpaced advancing ones by more than 4 to 1.

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