Nikkei drops on yen, debt worry; Suzuki climbs

A man looks at a stock quotation board outside a brokerage in Tokyo November 2, 2009.

TOKYO (Reuters) - Japan's Nikkei average lost 1.3 percent on Wednesday as debt problems in Greece and Dubai dampened investor confidence and pushed up the yen, which weighed on Honda Motor Co (7267.T) and other exporters.

Adding to the downbeat tone, revised GDP data showed Japan's recovery was slowing, while a weaker-than-expected outlook from diversified manufacturer 3M (MMM.N) and disappointing sales from McDonald's (MCD.N) dragged U.S. stocks lower.

But Suzuki Motor Corp (7269.T) climbed 3.5 percent after sources told Reuters that Volkswagen AG (VOWG.DE) plans to take a stake of up to 20 percent in it, providing Suzuki with a much-needed development partner and giving VW access to better small-car technology.

After the close, Suzuki said in a statement it will form an alliance with Volkswagen, which will take a 19.9 percent stake in Suzuki for $2.5 billion.

Fitch Ratings downgraded Greece, fanning fears about rising sovereign debt troubles, while Moody's cut the ratings of six Dubai-linked issuers after concluding that no "meaningful" government support would be provided to top firms like DP World.

"Worries about currency moves are playing a big role in today's fall," said Yumi Nishimura, deputy general manager at Daiwa Securities SMBC.

"Behind the moves in the currency market are credit concerns for Greece and Dubai and the uncertainty of those situations is also making investors here cautious and prompting some to take profits."

In light trade, the benchmark Nikkei .N225 shed 135.75 points to 10,004.72. It fell for a second day, after having gained nearly 12 percent in a six-day rally to Monday.

The broader Topix .TOPX fell 1.3 percent to 884.94.

Amid rising debt woes for Greece and Dubai, the yen retained broad gains made the previous day as investor risk aversion rose. It was trading slightly higher at 88.33 yen to the dollar. <FRX/>

Both the yen and the dollar tend to gain when worries about a global recovery or concerns about debt defaults rattle markets. In the stock market, market players fret about a stronger yen as it curbs exporters' profits when they are repatriated.

Japan's economy grew 0.3 percent in the third quarter, revised government data showed on Wednesday, much slower than an initial reading of 1.2 percent growth due to weaker corporate spending.

"Underlying capital spending has bottomed out, company production and profits have been recovering, so the economy is unlikely to suffer a soft patch or double-dip recession as some fear," said Tatsushi Shikano, senior economist, Mitsubishi UFJ Securities.

"Still, the biggest risk may come from the yen's rise as it would squeeze company profits and weigh on share prices."

EXPORTERS WEIGH, SUZUKI JUMPS

Shares of exporters fell, with Honda sliding 2.1 percent to 2,975 yen and Toyota Motor Corp (7203.T) declining 1.1 percent to 3,710 yen.

But Suzuki jumped to 2,370 yen.

"Financially speaking, it's helpful for Suzuki to have a partner to invest in future technologies," said Chizuko Satsukawa, an autos analyst at Standard & Poor's.

Resource-linked shares lost ground as commodity prices fell amid the general investor retreat from riskier assets. Oil prices tumbled for a fifth straight session and gold hit three-week lows on Tuesday. <COM/WRAP>

Mitsubishi Corp (8058.T), Japan's largest trading house, fell 1.6 percent to 2,200 yen and fellow trader Mitsui & Co (8031.T) lost 3.3 percent to 1,234 yen.

But shares of Aeon Co Ltd (8267.T) jumped 3 percent to 750 yen after Talbots Inc (TLB.N) laid out an acquisition and financing plan that would reduce debt and end a 21-year relationship with its Japan-based majority owner.

Talbots has struggled with a string of losses, a heavy debt burden and weak sales in the downturn.

Zeon Corp (4205.T), a maker of LCD-use resins, rose 1.2 percent to 409 yen after Nomura Securities upgraded it to "buy" from "neutral" and hiked its target price to 480 yen from 385 yen, citing an increasingly strong recovery in demand for LCD film.

Some 1.9 billion shares changed hands on the Tokyo exchange's first section, below last week's daily average of 2.4 billion.

Declining stocks outnumbered advancing ones by more than 2 to 1.

(Additional reporting by the Tokyo newsroom; Editing by Edwina Gibbs)