Nikkei drops as euro zone worries prompt profit taking

Mon Feb 4, 2013 10:33pm EST

* Hitachi sags after cutting forecast
    * Panasonic shoots to one-year high
    * Japan Airlines gains, f'cast hike offsets Dreamliner
losses
    * Fast Retailing weighs after poor January sales

    By Sophie Knight
    TOKYO, Feb 5 (Reuters) - Japan's Nikkei share average was on
track to snap five straight days of gains on Tuesday as
investors took signs of strife in peripheral euro zone countries
as a cue to lock in profits, with the benchmark hovering near
33-month highs.  
    Hitachi Ltd was in the firing line, shedding 6.9
percent after the industrial machinery firm sliced 13 percent
off its full-year operating profit outlook, citing sluggish
demand in Europe and a slowdown in emerging markets. 
    But Panasonic Corp rocketed 8.1 percent to an
11-month high, extending gains from Monday, when it hit a
one-day gain limit after reporting a third-quarter operating
profit, turning around from a loss the previous year. 
    "It looks like hot money as well as some short-covering. Its
results were not particularly unexpected, but once the price
started going up, a lot of retail investors piled in," said
Masato Futoi, head of cash equity trading at Tokai Tokyo
Securities. 
    Japan Airlines Co Ltd was also in favour, jumping
4.6 percent to its highest level since its public offering last
September, after the airline hiked its operating profit forecast
by 12.7 percent to 186 billion yen ($2 billion) for the year to
March 31. 
    The airline estimated the impact on its earnings from the
grounding of Boeing's Dreamliner jet at around 700
million yen ($7.6 million) for the rest of this fiscal year, but
said it will discuss compensation with Boeing. 
    By the midday break, the Nikkei had lost 1.3 percent
to 11,112.44 as investors took renewed concerns about the euro
zone debt crisis as a reason to lock in profits.
    Spanish and Italian bond yields rose after a corruption
scandal prompted calls for Spanish Prime Minister Mariano Rajoy
to resign and on news of a probe of alleged misconduct involving
an Italian bank three weeks before national elections.
     "There will only be a spurt of profit-taking in reaction to
this kind of news because it's just one small piece of a very
long and drawn-out crisis," said Toshiyuki Kanayama, senior
market analyst at Monex. 
    "The Nikkei was also begging for a fall after rising for
five straight days."
    Profit-taking meant some of the most sluggish stocks on
Tuesday morning were those that have seen sharp gains over the
past 2-1/2 months on hopes that Prime Minister Shinzo Abe's
brand of aggressive monetary and fiscal policy will reinvigorate
the economy.
    The real estate sector, which has soared around
31 percent since mid-November, sagged 3.6 percent, while the
insurers' sub-index, which has shot up 46 percent
over the past 2-1/2 months, lost 2.7 percent on Tuesday morning.
   "The market has been moving on expectation and speculation
for months, but investors might start looking at the
here-and-now soon," said Ryota Sakagami, chief strategist of
equity research at SMBC Nikko Securities.
    "Companies that would benefit from a return to inflation -
insurance, real estate and banks - might cool down because that
hasn't actually happened yet, while the winners from a weaker
yen will remain in focus because that's very real," he added. 
    The yen moved further off a fresh 33-month low hit on Monday
morning of 93.185 against the dollar, to 92.38 by Tuesday
morning. The Japanese currency's 14 percent slide since
mid-November has propelled up exporters, whose overseas revenues
will be swollen by a softer yen. 
    However, weakness in the yen came too late to much improve
results from the last quarter, with 64 percent of the 88 Nikkei
companies that have reported so far this earnings season missing
analysts' estimates, according to Thomson Reuters Starmine.
    While investors are hopeful the soft yen's benefits will
start appearing in bottom lines next earnings' season, Sakagami
said companies with a domestic focus may be sidelined as demand
slows at home and signs of inflation still seem a long way off. 
    Index heavyweight Fast Retailing Ltd, the operator
of the Uniqlo clothing chain, said domestic sales fell 5.5
percent in January from a year earlier, citing fewer weekend
days in the month. Its stock fell 2.8 percent,
taking 28.3 points off the benchmark. 
    The broader Topix dropped 0.9 percent to 951.91 in
heavy trade, with volume at 114.2 percent of its full-day 90-day
average.