Nikkei sags after short-lived Spain rally
* Broad sell-off across sectors, few outstanding stocks * Investors retreat to defensives * Consumption tax debate may rattle investors By Sophie Knight TOKYO, June 12 (Reuters) - Japan's Nikkei share average fell more than 1 percent on Tuesday, giving back more than half of its rally on Monday, as a bailout of Spanish banks failed to overcome worries about the future of the euro zone. The Nikkei fell 1.3 percent to 8,514.76 points by midday, after gaining 2 percent in the previous session on initial optimism over a euro zone agreement to loan Spain $125 billion to recapitalise its troubled lenders. "Yesterday the market rallied on Spain ... today it's retreating because people are unsure about the details of the loan," said Yoshihiko Tabei, chief analyst at Kazaka Securities. Stocks that were popular on Monday erased their gains, with Panasonic Corp slipping 3.5 percent, heavily traded Canon Inc dipping 0.8 percent, and Mazda Motor Corp down 2 percent. " Monday was just a quick rebound driven by day traders who saw the Dow went up on Friday and so went out to buy on Monday," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities. "But trading volumes didn't increase, it was just a quick spree." Investors retreated to defensive stocks such as Japan Tobacco Inc, which was the only company in the Topix core 30 in positive territory with a 1 percent gain. Amidst a broad sell-off, the top gainer on the main board was Nissei Build Kogyo Co, rising 13.4 percent after the prefab house builder said it would buy back up to 6 percent of its outstanding shares, or 500 million yen worth, from June 12 through August 31. Gree Inc, the operator of a social gaming site and one of the most shorted stocks on the Japanese market, gained 7 percent as the heaviest traded stock on the main board. The broader Topix index dropped 1.4 percent to 719.98 in low volume, a whisker ahead of its 14-day moving average at 718.96. The market was likely to tread within a narrow range through at least Wednesday ahead of the Greek election at the weekend, with little incentive for aggressive selling, according to market players. "On a technical level the average price-to-book ratio of Nikkei companies is about 0.8, so after a sell-off the market will probably steady," said Hiroichi Nishi, equity general manager at SMBC Nikko Securities. Although fears of contagion from Spain's struggling banking sector were temporarily soothed on Monday, concerns remain about the fate of the euro zone ahead of the Greek election, while investors are pinning their hopes on a G20 meeting on June 18-19. Prime Minister Yoshihiko Noda said on Monday he wanted to reach a consensus on a consumption tax hike before he left for the G20 meeting on June 16. Noda hinted he would call a snap lower house election if the tax bill does not pass the Diet. "The discussion of whether it will pass or not won't have that much impact on the market, but in the long-term increasing consumption tax is obviously a huge plus for Japan to improve its fiscal health," said Tabei of Kazaka Securities. " In the short-term it will boost the retail sector as consumers make big purchases before the law comes in, but once it does retail will suffer the most." The Nikkei managed to snap nine straight weeks of losses last week, its worst run in 20 years, after the broader Topix hit a 28-year low. The index has fallen 17 percent from its one-year high of 10,255.15 on March 27, on fears of a deepening euro zone debt crisis and slowing growth in the U.S. and China.
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