Japan's Nikkei slides as oil surges, exporters down

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By Elaine Lies

TOKYO, May 22 (Reuters) - Japan's Nikkei stock average slid 1.2 percent to a one-week low on Thursday, pressured by exporters such as Canon Inc (7751.T), which slid on a weaker dollar after oil surged above $135 a barrel and Wall Street fell on worries about U.S. inflation.

JFE Holdings Inc (5411.T) and other steelmakers, which supported the market's gains earlier this week, slid as investors locked in profits. Trading houses were hit by profit-taking as well after their recent surges on high commodities prices. Among the handful of gainers were Nippon Oil Corp (5001.T), Japan's largest oil distributor, and similar energy shares. But even some members of this sector were struggling, with oil and gas field developer Inpex Holdings Inc (1605.T) down by 0.7 percent.

"There's a lot of concern about U.S. inflation and that'll make it hard for anybody to buy the dollar, and these concerns may not ease until oil pulls back a bit," said Tomomi Yamashita, a fund manager at Shinkin Asset Management.

"Of course, the U.S. is more of a worry right now -- Japan's economy isn't as much of a problem."

The U.S. Federal Reserve on Wednesday slashed its 2008 growth forecast and warned of inflation, sending the dollar lower.

The dollar had slid to around 102.73 yen by midday in Tokyo after starting the day just above 103 yen JPY=, pressuring exporters. A stronger yen makes Japanese goods less competitive overseas and eats into profits when brought back home.

The benchmark Nikkei .N225 shed 164.03 points to end the morning at 13,762.27, its lowest since May 13. It earlier slipped to 13,658.02, to within a breath of falling 2 percent.

The broader Topix was down 0.9 percent at 1,357.88.

Though market players were keeping a keen eye on oil moves, they said it was still too early to say the market was now set on a falling path.

"What we're seeing is a bit of a break from recent gains, and we can't say that particular rally is completely over," said Yumi Nishimura, manager at the investment advisory section of Daiwa Securities SMBC.

"A lot depends on oil, and we still have to watch for a few more days before we can say anything conclusively."

EXPORTERS, STEEL, ENERGY

Bargain-hunting is likely to emerge at the lows, but it may be hard to find active buyers given the current climate.

"The issue here really isn't worries about inflation directly but more a question of valuation, with Japanese stocks having become expensive after the recent rises," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities.

Exporters fell broadly, with Canon down 2 percent to 5,350 yen and industrial robot maker Fanuc Ltd (6954.T) sliding 1.8 percent to 10,660 yen.

Honda Motor Co (7267.T), which is highly dependent on the U.S. market, slipped 1.8 percent to 3,290 yen, and Toyota Motor Co (7203.T) was down 2.1 percent to 5,130 yen.

JFE Holdings dropped 4.5 percent to 5,910 yen after the company said it had failed to conduct a required test on the strength of steel pipes mainly used for oil rigs. [ID:nTKU003292].

Fellow steelmaker Nippon Steel Corp (5401.T) was down 3.2 percent at 672 yen and Kobe Steel (5406.T) was down 1.4 percent at 356 yen.

A strong gainer was Chiyoda Corp (6366.T), which surged 6.7 percent to 1,015 yen after CLSA upgraded it to "outperform" from "sell", citing the company's leaning towards acceptance of new orders now that it has passed the peak of construction on technically difficult projects in Qatar.

Trading houses, which had surged recently on high commodities prices, fell. Marubeni Corp (8002.T) slipped 2.5 percent to 941 yen and Itochu Corp (8001.T) slid 2.5 percent to 1,243 yen.

The beneficiaries of record oil prices included Nippon Oil, which rose 3.8 percent to 821 yen.

Trade was moderate on the Tokyo exchange's first section, with 987 million shares changing hands, compared with last week's morning average of 960 million.

Declining stocks beat advancers by more than 2 to 1. (Editing by Brent Kininmont)