GLOBAL MARKETS-Japan stocks spooked to 6-mth lows by Wall St retreat

Fri Apr 11, 2014 12:20am EDT

* Nikkei sinks through major chart support, much of Asia in the red

* Nasdaq suffers biggest one-day fall since 2011

* Funds rotate out of momentum stocks to bonds, emerging markets

By Wayne Cole

SYDNEY, April 11 (Reuters) - Japanese shares sank to six-month lows on Friday as an escalating selloff on Wall Street spread to Asia and slugged markets that had been fairly resilient up to now.

What was increasingly looking like a major portfolio shift from momentum plays in U.S. technology and biotechnology stocks was having a knock-on effect across all regions and sectors, pressuring even defensive shares.

Momentum investing involves buying stocks that are already trending higher, often taking their price/earnings ratios into the stratosphere. When the momentum turns it can do so viciously as investors rush to the exits at the same time.

Japan, in particular, was vulnerable both to the dive in tech stocks and to the strength of the yen, which crimps exports and corporate profits. The Nikkei gapped lower right from the off to reach a trough of 13,885, but later pared its losses to be down 2 percent at 14,007.

Dealers suspected the authorities would be working behind the scenes to get public pension funds to buy and stop the rot.

The breach of chart support at 14,200 was a body blow and much would now depend on whether the index could close the session above the 14,000 bulwark.

Tech bellwether Softbank felt the heat with a drop of 4.8 percent to its lowest in over two months. Clothing giant Fast Retailing shed 8 percent after it cut its profit forecast when investors were already nervous about the impact of this month's sales tax hike.

The retreat followed a brutal day on Wall Street, where the Nasdaq suffered its worst single-day drop since late 2011. The tech-heavy index sank 3.1 percent, while the Nasdaq biotechnology index plunged 5.6 percent.

The selling rippled through the broader market pulling the Dow down 1.62 percent and the S&P 500 2 percent.

Investors were in part taking profits as the U.S. corporate reporting season started amid expectations that results would not be stellar enough to support the high valuations of some stocks.

Markets across Asia were spooked by the scale of the losses, with Korea down 0.9 percent and Australia 1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.9 percent.

Even the MSCI emerging markets index eased back a little, a day after reaching its highest for the year so far. The emerging sector has been on a tear in the last couple of weeks as funds cut back exposure to developed markets.

BONDS BENEFIT

With stocks out of favour, government bonds were set to benefit and yields on the benchmark 10-year U.S. Treasury note fell to their lowest since Feb. 27 at 2.62 percent. They were last at 2.656 percent in Asia.

Even Greece managed a triumphant return to the bond market just two years after its default placed it at the centre of the euro zone debt crisis.

Greece drew solid demand at its five-year bond sale, which aimed to raise three billion euros and offered a yield of 4.95 percent, beating Athens' 5 percent target. It had been expected to draw in U.S. investors including hedge funds.

The afterglow from the Greek deal combined with the latest drop in U.S. yields helped the euro higher on the dollar. On Friday, the single currency was up at $1.3892 having rallied two full cents over the past four sessions.

The dollar also lost ground to the yen, falling to 101.61 from a high of 102.14 on Thursday. That left it uncomfortably close to major chart support around 101.20 that has held for much of the past three months.

Against a basket of currencies, the dollar was holding at 79.417, after hitting a three-week low of 79.330.

The fall in the dollar helped gold score a 2-1/2-week high at $1,324.40 an ounce, though it had eased back to $1,317.14 on Friday.

Oil prices remained soft in the wake of disappointing trade data from China out on Thursday. Brent crude eased 17 cents to $107.29 a barrel, while U.S. crude was quoted down 18 cents at $103.22 a barrel. (Editing by Eric Meijer & Shri Navaratnam)

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