Nikkei slumps to over 2-month low as yen climb hits exporters
* Nikkei drops 6 pct, Topix off 4.9 pct * Incentive to buy Japan shares seen erased by strong yen * Futures selling drags on cash market ahead of settlement By Ayai Tomisawa TOKYO, June 13 (Reuters) - Japan's Nikkei share average dived 6 percent and entered bear market territory on Thursday, extending early falls after the dollar fell to a 10-week low against the yen on worries the Federal Reserve may trim its stimulus programme. Selling was accelerated by a sell-off in futures ahead of the settlement of June futures and options on Friday, market players said. The Nikkei dropped 5.8 percent to 12,516 by 0200 GMT, entering bear market territory, having plunged 20 percent from a 5-1/2-year high hit on May 23. Analysts said sentiment was hurt by the yen's strengthening above 95 to the dollar, the upper limit of the 90-95 yen range at which many exporters have based their assumptions for their earnings this fiscal year. A stronger yen erodes exporters' overseas earnings when repatriated and hurts their competitiveness by making their products more expensive. "Whether the yen's strength will persist or not is a key. If it does, companies' earnings will be trimmed, and investors are extremely concerned that the incentive to chase the Japanese market higher will be erased," said Hiroyuki Fukunaga, the chief executive of Investrust. On Wednesday, the dollar fell to 94.975 yen, its lowest level since April 4. "Investors are becoming risk averse on global assets," said Yasuo Sakuma, portfolio manager at Bayview Asset Management, adding that such weak sentiment may last as long as there are concerns about the Fed scaling back its stimulus measures. After the BOJ bought 19.8 billion yen ($207 million) in exchange traded funds and 100 million yen worth of J-REITs on Wednesday to support the market, some market participants noted that there is some sense of security that if the market drops sharply, the Bank of Japan will step in to support the market. But Sakuma argues that such efforts by the central bank may not have a long-lasting supportive impact on the market. "No matter what right thing the BOJ does, the positive impact won't last. Fundamental concerns are coming from overseas ... If the Fed decides to trim stimulus and once announced, the market will probably fall, then hit the bottom, and will rise again. Until then, sentiment will stay fragile," Sakuma said. Exporters lost ground, with Toyota Motor Corp dropping 3.8 percent, Panasonic Corp falling 4.3 percent and Komatsu Ltd shedding 3.4 percent.