Nikkei slides 2.6 pct as strong yen hits exporters; index heavyweights tumble
* Market braces for volatility on hedge funds' moves- analyst * BOJ's ETF buying could influence direction - analysts * SoftBank, Fast Retailing sold before options settlement By Ayai Tomisawa TOKYO, Aug 7 (Reuters) - Japan's Nikkei share average slumped 2.6 percent to a one-week low on Wednesday morning as exporters were hammered after the dollar fell to a six-week low against the yen, while index heavyweights SoftBank Corp and Fast Retailing Co were also sold off before Friday's options settlement. The Nikkei dropped 377.03 points to 14,024.03 in mid-morning trade, reaching the lowest point since Aug 1. Support is seen at its 75-day moving average of 13,992.41. Blue-chip exporters Toyota Motor Corp shed 1.6 percent, Canon Inc slid 2.0 percent and Sony Corp dropped 3.0 percent. Analysts said that investors were wary of further yen gains after the dollar hit a six-week low at 97.09 yen earlier on Wednesday, led lower by the ongoing uncertainty about when the Federal Reserve will start reducing its bond purchases. It last traded at 97.29 yen. A strong yen erodes Japanese exporters' competitiveness overseas as well as their dollar earnings when repatriated. The analysts were of the view that the Nikkei may slide below 14,000 if the dollar broke below the 97-yen level. "Hedge funds like commodity trading advisors are shorting through some of the European brokerages," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "They could also be selling index heavyweights to lower futures prices before the Nikkei 225 options settlement on Friday." Index bellwethers SoftBank tumbled 3.8 percent, Fast Retailing fell 3.7 percent, and KDDI Corp slid 5.0 percent. Market participants said the absence of major catalysts could mean that the market could move on any development, such as Tuesday's late surge led mainly by futures buying. The Nikkei's reversal of its losses on Tuesday was partially driven by a Reuters story that a Japanese pension fund might buy more stocks. The Bank Of Japan's purchases of exchange traded funds also supported Tuesday's rebound. The BOJ bought a combined 41.6 billion yen worth of ETFs on Monday and Tuesday. "Anything can trigger hedge funds' short-covering. If the BOJ starts buying ETFs in the afternoon again, the market may see big volatility, so we need to be careful," said Fujito. Investors are also looking to earnings news for cues, with companies such as Kubota Corp and Marubeni Corp expected to report results on Wednesday. "Earnings overall have been good, so the results should invite more buyers. But it may take some time for the market to evaluate earnings," said Shun Maruyama, chief equity strategist at BNP Paribas. Analysts said many portfolio managers of pension funds and mutual funds are absent from the market due to the summer holiday season. The Nikkei has risen 35 percent this year, underpinned by the government's sweeping stimulus policies aimed at pulling the world's third-largest economy out of two decades of stagnation.
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