Nikkei drop triggered by euro zone tensions, strong yen
* Nikkei falls almost 2 percent * Europe-related stocks battered * Power companies surge as PM hints nuclear plants to restart By Sophie Knight TOKYO, May 31 (Reuters) - Japan's Nikkei share average fell sharply in early trade on Thursday, with exporters such as Canon Inc and Mazda buckling under a strong yen and risk aversion heightened after Spain and Italy appeared increasingly unable to finance their own debt. The Nikkei fell 1.9 percent to 8,471.66 , smashing through the psychologically important 8,500 level as the yen firmed to a four and a-half month high against the euro after Italian 10-year bond yields breached the 6 percent danger level on Wednesday. The broader Topix index fell 1.5 percent to 712.98. "A slight sense of panic emerged last night in the U.S. market with stocks being sold up and investors buying bonds and yen," said Kenichi Hirano, operating officer of Tachibana Securities. "If the speed of that selling is curbed, we should see short-covering and investors buying stocks back, or even new investments." Exporters with high exposure to Europe were battered, with Canon shedding 4.4 percent and Mazda falling 3.9 percent. The securities sector was also dragged down 2.8 percent, weighed down by Nomura Holdings' loss of 2.7 percent, on fears of contagion from ailing Spanish banks in need of refinancing. Power companies surged against the current after Prime Minister Yoshihiko Noda said on Wednesday it was necessary to restart idled nuclear reactors that have been confirmed safe to avoid a summer power crunch, adding that the central government was winning support from local governments. Kansai Electric Power Co Inc led the pack, surging as much as 5 percent, while Shikoku Electric Power Co Inc , Chubu Electric Power Co Inc and Hokkaido Electric Power Co Inc gained between 2.3 and 3.7 percent. The Nikkei is down 11 percent on the month as investors have cut their exposure to risky assets on worries about the impact of Spain's precarious fiscal situation on the euro zone, as well as the implications of slowing growth in China and a stuttering U.S. recovery. Foreign investors sold a net 113 billion yen ($1.4 billion) of Japanese stocks last week according to the Japanese financial ministry, the sixth consecutive week of net selling. "In an absolute worst-case scenario, the uncertainty surrounding the euro zone's future could trigger another financial panic and push the Nikkei down to 7,500," said Kenichi Hirano, operating officer of Tachibana Securities. "That would bring its average price-to-earning ratio from 11 now to about 9.5, the same as after the Lehman Shock in 2008." However, some market participants were confident that buying on the dip would emerge to lend support to the market as Japanese stocks become increasingly reasonable. "It all depends on whether bargain hunting will come into play as Japanese stocks are spectacularly cheap now," said Toshiyuki Kanayama, senior market analyst at Monex. "The price-to-book ratio of the Nikkei is now at 0.9." By comparison, the price-to-book ratio of both the Dow Jones Industrial Index and the S&P 500 stands at 2.1.
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