Nikkei drops as euro-sensitive exporters hurt by Italy election deadlock

Mon Feb 25, 2013 8:02pm EST

* Exporters, financials and real estates decline sharply
    * Euro-senstive stocks bear brunt of selling
    * 25-day MA of 11,144.65 short-term support - analyst

    By Ayai Tomisawa
    TOKYO, Feb 26 (Reuters) - Japan's Nikkei share average
dropped on Tuesday, retreating from a 53-month high marked the
previous day, as the yen rose on uncertainty following the
Italian elections, hurting exporters with exposure to Europe
such as Sony Corp and Nikon Corp.
    The Nikkei dropped 1.9 percent to 11,437.78 in
mid-morning trade. On Monday, the Nikkei had risen 2.4 percent
to 11,662.52, its highest level since late September 2008.
    A heavy sell-off greeted early trade as investors who bought
exporters and financials unwound their positions.
    Sony Corp, Mazda Motor Corp and Nikon Corp
, which have relatively big exposure to the euro zone
economy, suffered a big selloff and dropped between 2.5 percent
to 3.6 percent.
    Financials and real estate companies, beneficiaries of the
government's reflationary policy, also took a breather, with
Mitsubishi UFJ Financial Group shedding 2.1 percent, Mizuho
Financial Group dropping 2.4 percent and Mitsubishi
Estate Co sliding 1.9 percent. 
    "The stock market hates uncertainty the most. As aggressive
buying lifted the market sharply yesterday, we will likely see
the opposite today," said Toshihiko Matsuno, a senior strategist
at SMBC Friend Securities. "Investors are worried about a hung
parliament in Italy, and there are fears that the country may
have to return to the polls in a short-period of time." 
    He added that the Nikkei's support line is seen at its
25-day moving average of 11,144.65 for this week.
    The broader Topix dropped 1.5 percent to 966.29.
    On Monday, U.S. stocks suffered their biggest drop since
November after a strong showing in Italian elections by groups
opposed to the country's economic reforms triggered worry that
Europe's debt problems could once again destabilize the global
economy.
    Against the yen, the euro hit 118.86 yen, the
weakest since Jan. 24, while the dollar dropped to 91.75 yen
, reversing earlier gains that drove it to a more than
33-month high of 94.76 yen, according to Reuters data.
    Italy's centre-left coalition holds a slim lead over former
Prime Minister Silvio Berlusconi's centre-right bloc in the
election for the lower house of parliament, three TV projections
indicated. But any government must also command a majority in
the Senate, a race that is decided by region. 
    In Japan, investors cheered news on Monday that the
government was likely to nominate Asian Development Bank
President Haruhiko Kuroda, an advocate of aggressive monetary
easing, as its next central bank governor.
    Analysts said that while the Japanese market is unlikely to
be immune from euro-zone problems in the short run, expectations
that Prime Minister Shinzo will continue to pursue bold policies
to reignite the economy is supporting long-term investors'
appetite for  Japanese stocks.    
    "A negative impact (from Europe's problems) to the Japanese
market is unavoidable for now, but hopes for Abenomics have not
changed," said Takuya Takahashi, a strategist at Daiwa
Securities.