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By Elaine Lies
TOKYO Jan 9 The Nikkei average fell to a new 18-month low on Wednesday, tumbling 1.7 percent in the first few minutes of trade as the spectre of a U.S. recession grew and a stronger yen took a toll on exporters.
The benchmark then pared some losses on defensive buying of firms such as drugmaker Eisai Co Ltd and heavy buying of communications firm NTT (9432.T) but was still down 0.8 percent by the midday break of trade.
The Nikkei has fallen more than 21 percent in the past six months, and Wednesday's low of 14,271.67 marked a loss of more than 1,000 points during 2008 trade alone.
U.S. stocks tumbled on Tuesday after phone company AT&T's (T.N) warning of soft consumer spending sparked new recession fears, driving the Standard & Poor's 500 Index to its worst-ever five-day start to a year.
Despite the gloomy mood, traders were hopeful that the low levels of the Tokyo market would start to prompt bargain-hunting as seen on Tuesday when stocks clawed their way up to their first positive close of the year.
"The big question, not only for Tokyo but for the whole world, is how much Wall Street falls, but I do think Japan should be able to start showing some strength on its own factors," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"Some defensive stocks, such as railways and Japan Tobacco, rose sharply yesterday, and this shows that rises are possible. Eventually I hope these sorts of stocks will help spark a sense of confidence in the wider market."
The broader TOPIX briefly went positive before ending morning trade flat as investors began to test the waters, said Takahiko Murai, general manager of equities at Nozomi Securities.
"We had some quite heavy buying of NTT and NTT DoCoMo, as well as some buying of banks."
The Nikkei .N225 ended the morning at 14,419.86, a loss of 108.81 points, after clawing back from earlier lows.
The TOPIX .TOPX was down 0.1 percent at 1,402.15, a loss of just under 1 point.
EXPORTERS SINK, DRUGS HIGHER
By midday the dollar had regained some strength against the yen, rising to around 109.10 yen after starting Tokyo trade below 109 yen JPY=. Honda Motor Co (7267.T) was down 2.9 percent to 3,410 yen and Toyota Motor Co (7203.T) was down 0.5 percent at 5,680 yen, though both were off earlier lows. High-tech shares continued to suffer from the gloomy U.S. outlook on fears this could mean businesses are unlikely to upgrade computer equipment in the face of an economic slowdown. TDK Corp (6762.T), a major manufacturer of electronic parts, was down 2.7 percent at 7,620 yen, and Advantest Corp (6857.T) was off 3.5 percent at 2,790 yen. Investors turned to defensive issues for the third straight day, with drugmakers such as Astellas Pharma Inc (4503.T), Daiichi Sankyo Co Ltd (4568.T) and Eisai Co Ltd (4523.T) helping to buoy the market.
Astellas Pharma was up 2.7 percent at 4,650 yen, Daiichi Sankyo rose 1.8 percent to 3,440 yen, and Eisai was up 3 percent to 4,410 yen.
Trade was active, with 989 million shares changing hands on the first section of the Tokyo Stock Exchange compared with a morning average of 724 million for the final week of December.
Declining shares beat advancing ones by 1,154 to 450. (Reporting by Elaine Lies; Editing by Hugh Lawson)