Nikkei drops 2 pct, weighed on by troubled Spanish banks
By Sophie Knight TOKYO, May 18 (Reuters) - Japan's Nikkei share average suffered a sharp fall on Friday morning, dropping through a strong support level as fears of contagion from Spain's ailing banking system hammered securities and a strong yen dragged on exporters. The Nikkei slid 2.1 percent to 8,689.07, well below 8,800, which provided strong support on Thursday. The broader Topix index dropped 2.2 percent to 730.52. "Even though Japanese stocks are reasonably priced at the moment, fears about Europe are intensifying, and the strong yen won't help matters," said Hiroichi Nishi, equity general manager at SMBC Nikko Securities. Nomura Holdings shed 4.6 percent, leading a 4.4 percent loss for the securities sector after a report that customers withdrew more than 1 billion euros from troubled Spanish lender Bankia in the past week, although the government denied it. Moody's Investors Service cut the ratings of 16 Spanish banks, saying the government's ability to prop up banks had weakened, while three- and four-year government bond yields reached 5 percent at an auction after official data showed the country was back in recession. Komatsu Ltd dropped 4.8 percent as the second heaviest traded stock on the main board and Hitachi Construction Machinery Co Ltd lost 7.5 percent after Caterpillar Inc's dealers reported slowing sales in April, with the sharpest deterioration in the Asia-Pacific region. Farm equipment and machinery maker Kubota Corp shed 3.8 percent. Some market watchers said the heavy losses could be pared in the afternoon, as on Thursday when the Nikkei scrambled back above 8,800 as investors went bargain-hunting. "First there's going to be a rush of selling, but once that has pushed down prices, I expect buying to kick back in," said Kenichi Hirano, operating officer at Tachibana Securities. "The average price-to-earnings ratio of companies on the Nikkei is now at 11 and the price-to-book ratio is 0.94, which will probably provoke some buying on the dip." But an obstinately strong yen, with the euro hanging at 3-1/2 month low around 100 yen and the dollar back at 79.37, hammered exporters, with Nissan Motor Co Ltd skidding 5.7 percent and Nikon Corp tumbling 4.6 percent.