* Markets still expect last-minute deal on U.S. debt
* Five-day moving average of 10,018 holds
* Sharp selling not expected before earnings-Chibagin Asset
* Volumes at two-mth low, major players on sidelines
By Antoni Slodkowski
TOKYO, July 25 The Nikkei average snapped a
three-day run of gains on Monday after U.S. debt ceiling worries
nudged the yen higher, but a key technical support held on hopes
that a last minute deal will be reached and upcoming corporate
earnings will be strong.
Most investors still assume that sanity will reign in
Washington and a debt deal will be done, but the lack of
progress in talks over how to cut the U.S. budget deficit is
making market players nervous.
Banking shares , which have outperformed recently
as euro zone officials agreed on steps to solve Greece's debt
woes, bore the brunt of today's selling, with the sector
subindex falling 1.5 percent and traders noting light volumes
and a lack of major foreign players.
"Everyone is looking at how the debt ceiling talks affect
the dollar/yen moves," said Koichi Ogawa, chief portfolio
manager at Daiwa SB Investments.
"The market has already priced in the post-quake recovery by
Japanese manufacturers and exporters, but the yen's rise comes
as a big negative surprise. With such a strong currency it's
hard to imagine a long-term recovery in corporate earnings,"
The dollar slipped in early Asia trade on Monday, falling to
a near four-month low of 78.13 yen , from 78.52 yen on
Friday. It trimmed its gains and was trading at 78.35 by late
The benchmark Nikkei average closed down 0.8 percent
at 10,050.01 on Monday, holding above support at its 5-day
moving average at 10,018. The broader Topix also shed
0.8 percent, to 861.91.
Volume fell to a two-month low with 1.4 billion shares
changing hands on the main board, below last week's lukewarm
daily average of around 1.6 billion shares.
Market players said losses were limited ahead of corporate
earnings later this week and as investors were cautious about
the possibility of foreign exchange intervention if the yen
"Company earnings will likely provide some support this
week. Macro indicators such as export data are showing signs of
recovery, so there won't be much selling going forward," said
Fujio Ando, senior managing director at Chibagin Asset
After the bell, Canon Inc posted a 31 percent
decline in quarterly operating profit on Monday, hurt by
production halts due to parts shortages after the March 11
earthquake, but it raised its full-year forecast due to a faster
recovery than expected.
The world's biggest maker of digital cameras lifted its
annual operating profit forecast to 380 billion yen, above a
market consensus of 365 billion yen.
Full coverage of U.S. budget and debt:
Possible outcomes for U.S. debt talks:
How US debt talks became a crisis:
Insider: Debt impasse weighs on U.S. image:
Republicans and Democrats in the U.S. Congress were each
trying to put together their own plan after talks with President
Barack Obama broke down over the weekend, heightening fears of a
catastrophic U.S. debt default that could roil the global
Exporters, sensitive to the rising yen, lost ground, with
bellwether Toyota Motor falling 1.4 percent to 3,290
yen and Sony shedding 2.2 percent to 2,054 yen.
But shares of drilling-related companies gained in heavy
volume after the Nikkei business daily reported a
government-funded experiment will try to produce natural gas
from methane hydrate on the sea floor by the end of fiscal 2012.
The only company in Japan involved in probing undersea oil
and natural gas fields, Japan Drilling , jumped 5.7
percent to 3,170 yen, reaching a three-week high, while boring
machine maker Koken Boring Machine rose 2.5 percent to
Kawasaki Heavy Industries , a major foreign supplier
of train technology to China, were hit by a slide in shares of
Chinese rail equipment makers after a deadly train crash at the
weekend triggered concerns about the safety of China's
fast-growing rail network.
Kawasaki ended down 2.9 percent at 298 yen. Chinese rail
equipment makers fell as much as 16 percent.
Initial reports from China were that the trains involved in
the collision were made with Chinese technology, but media
reports Monday laid the blame on "foreign technology."
(Additional reporting by Antoni Slodkowski; Editing by Edwina