Japan Nikkei falls 5 pct on yen, oil, Wall Street

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By Elaine Lies

TOKYO, Jan 4 (Reuters) - Japan's Nikkei tumbled 5 percent on Friday, its first trading day of the year, with the broader TOPIX index battered to its lowest close since Oct 2005 by a stronger yen, higher oil prices and worries about the U.S. economy. The benchmark Nikkei .N225 closed down 4.03 percent after a frenetic half-day session, its lowest close since July 2006, marking its greatest one-day percentage fall since Aug. 27, 2007.

The broader TOPIX closed down by 4.3 percent at 1,411.91, shedding 63.77 points.

Exporters were battered, with companies such as Sony Corp (6758.T) hit especially hard. Many such firms, including Toyota Motor Corp (7203.T), have assumed a currency rate of around 110 yen per dollar.

The Nikkei's drop vastly outpaced falls in other Asian stock markets and even outstripped the 2.3 percent loss marked by the Dow Jones industrial average .DJI from Dec 28 to Thursday, during which Tokyo markets were closed for the New Year's holiday.

"What we're seeing here is a double punch from growing fears about the U.S. economy and the stronger yen," said Yutaka Miura, a senior technical analyst at Shinko Securities.

"High-tech shares have also been hit by falls of semiconductor shares overseas, especially Intel." Intel Corp (INTC.O), the world's largest chip maker, shed 2.7 percent during Thursday U.S. trade, bringing its decline for the first two trading days of 2008 to nearly 8 percent after Bank of America downgraded several microchip makers on Wednesday.

U.S. crude oil prices hit $100.00 per barrel for the first time ever on Jan 2 and $100.09 on Jan 3.

The dollar was trading at just under 109 yen in Tokyo by midday JPY=. It hit a five-week low of 108.25 yen on electronic trading platform EBS on Thursday.

"The market was struggling to deal with all of the changes since it closed for the year on Dec 28, but there were simply too many factors for it to absorb in today's short session," said Masayoshi Okamoto, head of dealing at Jujiya Securities.

Market participants were divided on where the fall might halt, but Japanese Financial Services Minister Yoshimi Watanabe said on Friday that Japanese stocks are relatively cheap with a price-to-earnings ratio of about 15.

Some market participants agreed, saying that prices were already more than low enough to pique investor interest, but others remained sceptical.

TOO MUCH UNCERTAINTY

"There's so much uncertainty now about the U.S. economy, the dollar/yen rate, and crude oil prices that it's pretty hard to see how anybody could buy," Miura at Shinko Securities said.

"Until these things settle down, investors are going to remain leery of buying."