Nikkei falls to lowest level since April 2009

An employee of Tokyo Stock Exchange scratches his forehead at the bourse in Tokyo November 2, 2011.

TOKYO (Reuters) - The Nikkei average fell more than 1.5 percent to its lowest intraday level since April 2009 on Thursday, hurt by a worrying German bond sale and expectations that mounting European debt concerns will continue to push overseas equities markets lower.

But strategists say that Tokyo's fall is being tempered by expectations of buying by public pension funds, as well as the Bank of Japan's exchange-traded fund (ETF) purchases which are part of the central bank's liquidity-boosting program.

"There are no reasons to be optimistic, but there is reason to expect BOJ and public pension fund buying, so the downside is supported for now," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley.

Germany suffered one of its worst auctions for new 10-year debt since the launch of the euro, sparking fears the debt crisis was even beginning to threaten the European powerhouse economy as expectation grew that it will have to bail out Europe's weaker nations.

German leaders have resisted calls, most notably from France, to allow the European Central Bank to intervene and act more decisively.

Wall Street had its sixth straight losing day on Wednesday, ahead of the U.S. Thanksgiving holiday. Tokyo markets were closed for a holiday on Wednesday and were catching up with losses overseas.

The Nikkei .N225 dropped 1.6 percent to 8,186.06, while the broader Topix index .TOPX lost 1.4 percent to 707.92.

The Nikkei opened below 8,227.63, the two-and-a-half-year intraday low hit on March 15 in the wake of the earthquake and tsunami.

"The world is in chaos and each major market is looking at and reacting to macro concerns from Europe rather than its own data and economy," said Masayoshi Okamoto, head of dealing, Jujiya Securities.

Strategists said support lies at 8,150, the level at which Nikkei futures closed in Chicago.

Resistance lies at the 5-day moving average, now around 8,343, but market participants were more focused on downside risks rather than upside potential.

Japanese stocks could break below the 8,000 level within this month, strategists said, although it was likely to be a temporary trend before bouncing back.

"PLAYING WITH FIRE"

Olympus Corp (7733.T) continued its gains for the third day, with shares jumping 17.3 percent to 1,019 yen, topping the main board as the heaviest traded issue by turnover, as calls mounted for the scandal-hit camera and endoscope maker to remain listed.

"There is no basis for the stock to be up at this level ... In two weeks the company will announce its revised results," said Jujiya's Okamoto.

"What's going on in the market right now is just traders playing with fire until the company's announcement."

Olympus has said it will meet a December 14 deadline for filing its financial statements for the six-months to September. Big stockholders, a major governance advocacy group and ousted CEO Michael Woodford have all called for Olympus not to be delisted.

Komatsu (6301.T) fell 3.6 percent to 1,826 yen and Fanuc Corp (6954.T) shed 2.7 percent to 11,930 yen. The construction equipment FIRM and industrial robot maker both garner significant sales in China, and dropped after preliminary data showed China's factory sector shrank the most in 32 months in November.

Isuzu Motors (7202.T) rose 0.9 percent to 342 yen after Deutsche Bank raised the automaker's target price to 450 yen from 415 yen. Deutsche kept its "buy" rating on Isuzu and said the target price change was due to the company's positive first-half results and its mid-term plan focused on emerging markets.

Isuzu outperformed rival carmakers Toyota Motor Corp (7203.T), down 0.6 percent at 2,373 yen, and Honda Motor Co (7267.T), which dipped 0.4 percent to 2,204 yen. Nissan Motor Co Ltd (7201.T) shed 0.6 percent to 661 yen.

Yusen Logistics Co (9370.T) lost 2 percent to 968 yen, after Deutsche Securities cut its rating on the issue to "hold" from "buy" citing prolonged weakness in the European and U.S. economies and the high yen.

"As Asian demand is not yet enough to stimulate air freight demand, Yusen Logistics is unlikely to fully benefit from its strength in Asia given the slump in U.S./European economies," Deutsche analyst Seigo Ando said in a research note.

(Additional reporting by Lisa Twaronite; Editing by Joseph Radford)