Nikkei hit by stalled U.S. budget talks, falls below 10,000

Fri Dec 21, 2012 2:04am EST

* Nikkei down 1.0 pct, Topix off 0.7 pct
    * Nikkei falls below 5-day moving average
    * Market surprised by U.S. fiscal talks setback - analyst

    By Ayai Tomisawa
    TOKYO, Dec 21 (Reuters) - Japan's Nikkei average fell below
the 10,000-mark on Friday after a Republican proposal to avert a
U.S. fiscal crunch failed to get enough support, a setback that
triggered selling in futures and shares of exporters.
    The Nikkei dropped 1.0 percent to close at 9,940.06,
after having risen as high as 10,175.06 in early trade. The
index fell below its 5-day moving average of 9,978.34.
    U.S. stock index futures fell sharply after the U.S. House
of Representatives abruptly recessed following failure by the
Republican leader to muster enough support for a "fiscal cliff"
bill. That deepened uncertainty over prospects for averting
automatic spending cuts and tax increases set to start in
January. 
   S&P 500 E-Mini stock futures plunged on the news in a
matter of seconds - falling as much as 3.6 percent in a mini
"flash crash" that even caused a halt in trading of one March
E-Mini futures contract because of the sharp move.
 
    "Investors were startled after seeing U.S. futures heading
south," said Kenichi Hirano, a strategist at Tachibana
Securities, adding that they wasted no time to sell Nikkei
futures.
    Analysts also said investors used the news as an excuse to
take profits before a three-day weekend as the Nikkei has risen
14.8 percent over the last five weeks. Before the U.S. jolt, 
investors had been ready to chase the market higher on hopes
that the U.S. fiscal talks were moving towards a resolution.
    "Investors were caught off-guard. Some of them were still
buying before Christmas, but others, who were looking for the
timing to take profits from recent gains, decided that this news
was a reason to sell," said Hikaru Sato, a senior technical
analyst at Daiwa Securities.
    The yen, which has been pressured by market expectations
that a new Japanese government will push the Bank of Japan into
more forceful monetary easing, regained a bit of ground as risk
appetites fell.  
   The dollar fell to 84.02 yen, inching away from a
20-month high of 84.62 yen struck on Wednesday. 
    A strong yen cuts exporters' overseas earnings when
repatriated. Among exporters, Toyota Motor Corp on
Friday fell 2.5 percent after rising 2.1 percent in early trade
while Canon Inc ended 1.5 percent lower after initially
rising 1.6 percent.    
    Olympus Corp dropped as much as 2.8 percent before
ending down 0.7 percent after saying that a planned merger of
its medical business with Sony Corp would take longer
than expected due to delays in obtaining regulatory approval
abroad. 
    The broader Topix fell 0.7 percent to 832.72 in
active trade, with 3.61 billion shares changing hands, compared
with last week's average daily volume of 2.29 billion shares.
This week, daily average volume was 3.53 billion shares.
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