Nikkei suffers biggest fall in 5 mths on fear of faraway conflicts

Fri Aug 8, 2014 2:50am EDT

* Tensions in Ukraine, U.S. airstrikes in Iraq sour
sentiment
    * Nikkei falls to 2-month low
    * Futures trading volume highest in 6 months
    * Earning disappointment hits Nikon, Nisshin Steel
    * Volatility index at highest since March

    By Hideyuki Sano
    TOKYO, Aug 8 (Reuters) - Japan's Nikkei share average
slumped to a two-month low on Friday, suffering its biggest
daily decline in five months as investors were gripped with fear
that geopolitical crises in Ukraine and the Middle East could
disrupt global growth.
    The Tokyo Stock Exchange's all 33 sector subindexes posted
losses as investors rushed to reduce exposure to risk assets,
while trading volume in the Nikkei futures hit the highest level
since early February.
    "My whole screen is completely in red. Bad stocks are going
down and good stocks are down. This is not related to
fundamentals," said Stefan Worrall, director of equity cash
sales at Credit Suisse in Tokyo.
    The Nikkei average fell 3.0 percent, its largest daily loss
in five months, to 14,778.37. It has fallen 6.2 percent
from a six-month high of 15,759.66 hit just over a week ago.
    Risk appetite was depressed on concerns that Russia's ban on
certain food imports from the West in retaliation against the
West's sanctions on Moscow could hurt an already-fragile
European economy.  
    "Europe doesn't look good. Deflationary conditions are
strengthening, raising concerns that monetary easing by the ECB
may not be working. If you have geopolitical worries at a time
like this, it's inevitable to see weakness in shares," said
Hiroshi Ono, the head of equity investment at Sumitomo Life.
    Sentiment soured further after U.S. President Barack Obama
said he authorised targeted air strikes against Islamist
fighters in northern Iraq to help besieged religious minorities
and protect U.S. personnel in Iraq. 
    "Conflicts in Ukraine and the Middle East don't seem to be
likely to calm down any time soon," said Hisashi Kuroda, manager
of equity investment at Meiji Yasuda Asset Management.
    Geopolitical uncertainties could erode the consensus view
that the Japanese economy will easily recover from a slowdown
caused by sales tax hike in April.
    One of the biggest drags on the Nikkei was Nikon,
which fell 9.4 percent, hitting a three-year low, after it cut
its full year earning outlook, citing weak sales.
    Other companies with soft earnings took a similarly large
hit. Nisshin Steel fell 9.8 percent and Nippon Electric
Glass fell 8.8 percent.
    Japan Tobacco posted the biggest losses among the
Topix 30 index of major companies, as its business in Russia is
a core part of its overseas business.
    Mixi Inc, an internet social network service that
has been a recent favorite among Japanese day traders, tumbled
5.0 percent. 
    The market's sharp fall took many market players by
surprise, who have thought expectations of more stock buying by
the country's largest pension fund would limit losses.
 
    As a result, the Nikkei volatility index spiked up
to as high as 27 percent, its highest since March, almost
doubling from a historic low of 14 percent hit just last month.
    The broader Topix fell 2.4 percent to 1,228.26 with
trading volume about one third above its average during the past
several months.
    Trading volume in futures shot up to 142,342 contracts, more
than double the average in the past three months. 
    The JPX-Nikkei Index 400 also dropped 2.4
percent.

 (Additional reporting by Tomo Uetake; Editing by Eric Meijer
and Simon Cameron-Moore)
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