Nikkei sags as earnings concern persists

* Softbank drops on report it is nearing $20 billion deal
* Komatsu strong as Nikkei says to meet guidance
* Pessimism about earnings continues to weigh

By Sophie Knight
TOKYO, Oct 15 (Reuters) - Japan's Nikkei share average
slipped in early trade on Monday as investors remained concerned
about under-par corporate profits, and Softbank Corp
dropped on news it is nearing a $20 billion deal to buy out a
U.S. telecoms company.
Softbank dropped 4.7 percent to a five-month low on Monday
after a source said the Japanese mobile carrier is close to
securing a deal to acquire control of Sprint Nextel Corp
by providing $8 billion of new capital and acquiring an
additional $12 billion worth of shares from Sprint shareholders.

The purchase would give Softbank a 70 percent stake and
imply the U.S.'s company was worth about two-thirds more than
its market capitalization at Friday's close.
The telecommunications sector was the weakest
sub-index, dropping 1.8 percent as Softbank competitor KDDI Corp
slipped 2.6 percent and Nippon Telephone and Telegraph
Corp lost 1.2 percent.
"It's the same reaction as when they said they were going to
buy Vodafone a few years ago, everyone came out and said it was
far too expensive," said Fumiyuki Nakanishi, general manager of
investment and research at SMBC Friend Securities.
"(However),I think that's quite impressive and I think
investors will realise he's making the right decision down the
road," he added.
The Nikkei lost 0.3 percent to 8,512.40, striking a
2-1/2 month low after dropping for a fifth straight session on
Friday and marking its biggest weekly fall since May as
investors fret over profit warnings as the earning season gets
underway.
A few smaller companies were sold off after reporting
disappointing results after the bell on Friday.
Samantha Thavasa Japan Ltd sagged 6.6 percent after
the high-end apparel maker sliced its six-months earning
estimate for the half ended August 31 by more than half to 300
million yen ($3.8 million) and cut its full-year
forecast.
Shibaura Mechatronics Corp slipped 5 percent after
the after the flat panel maker cut its operating profit forecast
for the year ending March 31 by 75 percent to 200 million yen on
falling demand and poor sales of semiconductors.
Construction machinery maker Komatsu Ltd helped
limit losses, however, as it gained 3.4 percent and the
second-most traded stock by turnover on the main board the
Nikkei business daily said its operating profit for the first
half would likely meet company guidance of around 111 billion
yen ($1.4 billion).
That, however, still marks a drop of 17 percent on the year
due to slowing demand in China.
Concern about the impact of a global slowdown corporate
profits has weighed heavily on Japanese equities over the past
month, while the market has also been hurt by a diplomatic spat
that led Japanese exports to China to fall 9.6 percent in
September on a year earlier.
That has left stocks looking cheap, with stocks on the first
section of the Tokyo Stock Exchange trading below book value on
average with a price-to-book ratio of 0.9, according to Thomson
Reuters Starmine, compared to the S&P 500's price-to-book ratio
of 2.2.
"After a big drop last week stocks are starting to look
cheap," said Masayuki Doshida, senior market analyst at Rakuten
Securities. "I think we'll see a pretty steady market today as
it's difficult to make big moves and people have sold off a lot
in anticipation of earnings that haven't come out yet."
The broader Topix index was flat at 718.11 by
mid-morning.