Nikkei set for longest weekly losing run in 20 years

TOKYO Fri May 25, 2012 3:11am EDT

A woman smiles as she walks past an electronic board displaying graphs showing recent movements of Japanese market indices, outside a brokerage in Tokyo February 15, 2012. REUTERS/Yuriko Nakao

A woman smiles as she walks past an electronic board displaying graphs showing recent movements of Japanese market indices, outside a brokerage in Tokyo February 15, 2012.

Credit: Reuters/Yuriko Nakao

TOKYO (Reuters) - Japan's Nikkei average steadied on Friday, supported by investors buying defensive stocks such as pharmaceuticals and food, as well as battered shares, although the index was poised to extend its run of weekly losses to the longest in 20 years.

The Nikkei .N225 has fallen 16.5 percent since hitting a one-year peak on March 27 on worries over slowing global growth and a deepening euro zone debt crisis. Technical indicators show the benchmark is deep in "oversold" territory.

The average was flat at 8,563.65 by the midday break, and is down 0.6 percent this week. If the Nikkei were to end the week lower it would be the eighth straight week of losses, its longest such run since 1992.

"It's basically short-covering. It's just heavily-sold names in the past couple of days that are getting bought. People are also picking up defensives," a senior dealer at a European brokerage said.

Following the sell-off, investors have also started to pick up more Nikkei call options, with some interest on July expiry at 9,000 JNI090G2.OS, another trader said, as opposed to buying put options last week to hedge against further falls.

Japan Tobacco Inc (2914.T) climbed 4.5 percent after the world's third-largest cigarette maker said after the market closed on Thursday that it will buy Belgian tobacco product maker Gryson NV for 475 million euros ($597.66 million) to cut its reliance on the domestic market.

"Although we think the near-term impact on Japan Tobacco's earnings will be small, this is an attractive deal in view of Gryson's strong potential and profitability, and expect top- and bottom-line synergies with Japan Tobacco," Nomura said in a client note, keeping a "buy" rating on the stock.

Canon Inc (7751.T) rose 1.3 percent after shedding 4.7 percent in the previous two sessions, while defensives pharmaceutical .IPHAM.T and food .IFOOD.T sectors were up 1.3 and 1.5 percent, respectively.

Sony Corp (6758.T) lost 3.4 percent and Panasonic Corp (6752.T) slipped 1.1 percent, however.

The broader Topix .TOPX dipped 0.2 percent to 720.73.

Trading volume on the main board after the halfway point was relatively light, at 38.2 percent of its full daily average for the past 90 days.

BNP Paribas said it had revised up its forecast for Nikkei dividend futures for 2012 and 2013 after companies reported stronger optimism about future earnings and their intention to raise dividends.

But concerns over the health of the global economy and the run-up to the Greek election on June 17 might pressure Nikkei dividend index futures in the near-term, it said.

The brokerage recommended investors buy Nikkei dividend put options at 180 expiring in December 2013 and sell two put options at 165 in similar maturity to hedge against a pullback. ($1 = 0.7948 euros)

(Editing by Ramya Venugopal)