* Foreigners cutting risk on US debt woes - analyst
* Nikkei breaches 200-day moving average of 9,919
* U.S. debt ceiling crisis encourages selling
* Investors see increasing chance of failure to reach deal
by Aug 2
By Hideyuki Sano and Ayai Tomisawa
TOKYO, July 28 The Nikkei stock average fell
sharply on Thursday to close below its 200-day moving average,
as the market grew increasingly nervous about whether a deadlock
in talks on the U.S. debt ceiling could be solved to avoid
default before next week's deadline.
Also hurting sentiment were euro zone debt problems, with
Italian and Spanish bonds under pressure, while U.S. data
underscored the fragile state of economy.
Top U.S. lawmakers worked behind the scenes looking to
salvage a last-minute deal from rival debt plans but a clear
compromise has yet to emerge.
"There seems to be a chance that deal won't be reached by
Aug. 2. I'm sure they are already considering a plan B for such
a case (to avoid default) but markets would be thrown into a
chaos at least for a while," said Norihiro Fujito, a senior
investment strategist at Mitsubishi UFJ Morgan Stanley
Expectations are growing that any deal will lack a
comprehensive plan to cut the U.S. budget deficit, making credit
downgrades more likely.
"Increasingly concerned about the possibility of a U.S.
credit downgrade, foreigners are cutting back on risk
positions," said Fumiyuki Takahashi, managing director at
"The standard view that 'America is strong' could
be in jeopardy and if confidence in the U.S. is damaged, the
stock market may not be able to avoid a serious sell-off."
The benchmark Nikkei extended losses in the
afternoon on selling from hedge funds to drop 1.5 percent, its
largest percentage fall in more than a month. It ended at
9,901.35, below its 200-day moving average of 9,921 in the first
decisive break of the average in nearly a month.
The broader Topix index finished down 1.3
percent at 848.37.
For the Nikkei, possible support lies around 9,720, its June
1 high and its 65-day moving average.
Takahashi said the Nikkei could fall by 200-300 points if
United States' AAA credit rating status was lowered, but the
benchmark is expected to be supported above 9,500.
The three main ratings agencies have all warned the United
States' coveted AAA credit rating status would be in serious
jeopardy if the White House and Congressional Republicans cannot
reach a deficit reduction agreement.
Adding to U.S.-related woes, concerns remain about a
recovery in the U.S. economy with new orders for long-lasting
U.S. manufactured goods falling unexpectedly in June, weighed
down by weak receipts for transportation equipment.
Hopes for more strong quarterly results from the Japanese
corporate sector lent some support to the Tokyo market, with
companies like Hitachi Construction Machinery
outperforming after robust earnings.
"Buying on dips in companies with good earnings may
continue, but exporters may not fare well for the time being as
long as there are concerns about the U.S. economy," said
Hideyuki Okoshi, general manager at Chibagin Securities.
Hitachi Construction Machinery rose 3.8 percent to 1,745 yen
after saying its April-June net profit surged 65 percent on the
year to 2.3 billion yen ($29.5 million) while operating profit
climbed 91 percent to 8.2 billion yen.
Panasonic rose 0.5 percent to 929 yen after sources
said the company will sell its Sanyo Electric unit's washing
machine and refrigerator operations in Japan and Southeast Asia
to China's Haier Group Co for about 10 billion yen
But Advantest , the world's No.2 maker of equipment
to make chips, plunged 6.9 percent to 1,400 yen after the
company said quarterly operating profit fell 57 percent from a
year earlier and warned that orders could level off in the
The Japanese yen is nearing a record high against the
dollar, raising worries about profits at Japanese exporters.
Although manufacturers such as Canon and Fanuc
have posted solid growth in the April-June quarter
despite the yen's rise, less competitive companies are likely to
be more vulnerable, analysts said.
"Some excellent companies may be overcoming the higher yen.
But you shouldn't think that goes for all other companies. Only
a handful of competitive companies can do that," said Mitsubishi
In the Tokyo Stock Exchanges' first section, decliners
outnumbered advancers by 1,288 to 278 while trading volume was
1.79 billion shares, slightly above the average for the past six
(Editing by Edwina Gibbs)