Nikkei drops on mixed earnings; investors cautious ahead of Fed, ECB
* Sumitomo Heavy skids, slashes profit outlook on weak China demand * Komatsu plummets after cuts profit outlook * Honda falls after undershoots expectations * But Panasonic, Softbank gain TOKYO, Aug 1 (Reuters) - Japan's Nikkei share average dropped in early trade on Wednesday on weak earnings from manufacturers such as Komatsu Ltd, with most investors remaining cautious ahead of the outcomes of key central bank meetings. Shipbuilder Sumitomo Heavy Industries Ltd lost 16.7 percent after cutting its profit outlook by 29 percent due to weakening demand in China - a factor that has hurt profit forecasts at a raft of companies. The Nikkei dropped 1.2 percent to 8,589.14, falling back below its 14-day average after four straight days of gains took it above that level on Wednesday, helped by investors trying to improve their portfolios at the end of the month. Earnings-inspired gains for a handful of companies including Panasonic Corp, which shot up 5.9 percent after striking its first quarterly profit since the October-December quarter of 2010, were not enough to counter losses prompted by disappointing forecasts at other firms. "Today is very much a day for cherry-picking stocks based on earnings," said Ryota Sakagami, chief strategist of equity research at SMBC Nikko. "Everyone is waiting for the bigger macro events so it's not time for purchasing the market as a whole." Market players have been speculating on whether the U.S. Federal Reserve will introduce new easing measures after a two-day policy meeting on Wednesday, while the European Central Bank will meet on Thursday following ECB president Mario Draghi's comment last week that the bank would do "whatever it takes" to save the euro. "There is very little chance that the Fed will bring in more quantitative easing just yet but (Fed Chairman Ben) Bernanke might give a sign whether they will do it at all in the future," Sakagami said. "We're far more likely to see the ECB do something big, like starting to buy Spanish bonds, simply because Draghi wouldn't say something like that without following it up." While weakening demand in Europe due to the region's fiscal woes has cast a shadow over Japan's earning season, a slowdown in China shifted into the spotlight on Wednesday morning as its official Purchasing Manager's Index (PMI) came in at 50.1, below expectations and down from 50.2 in June. "Komatsu and other China-dependent firms are the ones to watch today," said Masayuki Doshida, senior market analyst at Rakuten Securities. Komatsu Ltd, a construction machinery maker dependent on China for much of its revenue, skidded 9.3 percent to a 9-1/2 month low after cutting its annual operating profit outlook by 16.8 percent and posting an 18.5 percent drop in quarterly operating profit in April-June compared to the previous year. "China's central bank cut rates last month but it's not helping; the Shanghai Composite index is still falling and shows no sign of stopping," Doshida added. The Shanghai Composite lost 5.5 percent in July after losing 6.2 percent in June and has stooped to 40-month lows in recent sessions. The Nikkei, by comparison, lost 3.5 percent in July. The broader Topix index dropped 1.2 percent to 727.38 yen. HONDA HURT Honda Motor Co Ltd shed 5.8 percent after the automaker's operating profit for April-June came in below market expectations as a strong yen eroded some of the gains from its sales recovery in North America, its biggest and most profitable market. Panasonic Corp fared better, climbing 5.5 percent to a near three-week high after the electronics maker posted a near seven-fold increase in quarterly operating profit and set its sights on further business restructuring to revive the company. Softbank Corp rose 4.2 percent after the mobile phone operator said on Tuesday it would begin paying an interim dividend of 20 yen, bringing the annual dividend to 40 yen. The company posted a 9 percent increase in quarterly operating profit for April-June. Elsewhere, Olympus shed 7.4 percent after shareholder Terumo Corp said on Tuesday it had filed a lawsuit against the camera and endoscope maker, seeking damages for lost shareholder value due to its accounting scandal last year. Terumo proposed a 50 billion yen investment in Olympus last week, an offer that Olympus then said it was considering.
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