TOKYO Japan's Nikkei average fell to a four-week closing low on Friday as resources-related shares remained under pressure on concern over slowing China growth, while Sharp Corp sank on uncertainty over a tie-up with Taiwan's Hon Hai Precision Industry.
Expectations of further stimulus steps from the U.S. Federal Reserve that investors hoped might bolster the slowing global economy also faded, helping the Nikkei .N225 fall 1.6 percent to 8,839.91, breaking below its 25-day moving average at 8,927.11.
"The whole market is coming under pressure -- the sense of uncertainty around Sharp's fate is the same as the unease around the market as a whole," said Kenichi Hirano, operating officer at Tachibana Securities.
The Nikkei was down 2.5 percent this week but was up 1.7 percent for the month, its best August performance since 2006. But September tends to be the weakest month for the index, with an average monthly drop of 1.2 percent between 1971 and 2011.
Betting on a quick fix from the European Central Bank to bring down punishingly high borrowing costs for Spain and Italy and another round of stimulus from the Fed, the Nikkei has risen 6.2 percent since it hit a seven-week low on July 25.
But a Reuters poll showed investors and economists have become far more skeptical over the past two weeks that the Fed will announce a new round of bond purchases at its September meeting as U.S. economic data during that period has been a little stronger-than-expected.
Sharp (6753.T) sagged 12.8 percent as the abrupt departure of Hon Hai Chairman Terry Gou from Japan fuelled uncertainty over the tie-up expected to help secure the long-term viability of the Japanese LCD TV panel maker.
Short selling in Sharp is on the rise again, indicating greater investor pessimism. According to data provider Markit, 91.93 percent of the stock that is available to be borrowed had been out on loan as of August 29, up from a near three-week low of 87.63 percent on August 27.
The broader Topix .TOPX fell 1.6 percent to 731.64. Nearly 1.59 billion shares changed hands, up from Tuesday and Wednesday's levels but down from Monday's 1.63 billion shares.
"The Japanese stock market is cheap especially if you look at valuations like price-to-book ... I don't think there is a big downside from here," said Hidehiro Tomioka, head of equity investment at Manulife Asset Management in Tokyo.
The Topix carries a 12-month forward price-to-book ratio of 0.87 versus a five-year average of 1.1, Thomson Reuters Datastream data showed.
"On the other hand, the upside is somewhat limited because corporate earnings may be missing market expectations or company's guideline," Tomioka said.
RESOURCES-RELATED FIRMS HIT
Worries over China's sputtering growth have been weighing on raw material prices, with iron ore prices .IO62-CNI=SI falling to their lowest since late 2009.
Construction machinery makers Komatsu Ltd (6301.T) lost 2.2 percent and Hitachi Construction Machinery Co Ltd (6305.T) shed 2.6 percent, partly hurt by news that Chinese excavator maker Sany Heavy Industries Co Ltd (600031.SS) missed forecasts with a 28 percent fall in second-quarter net profit.
Komatsu and Hitachi Construction Machinery both had fallen for nine out of the past 10 sessions on fears that mining firms may further cut capital expenditure as demand from China slowed.
Nippon Steel Corp (5401.T) sank 5.6 percent and Sumitomo Metal Industries lost 5.1 percent after both steelmakers widened their net loss forecasts for the six months ending September, reflecting a strong yen and tough market conditions in the industry ahead of their merger.
The iron & steel sector .ISTEL.T sagged 4.1 percent, while the mining sector .IMING.T shed 2.3 percent.
Casting further gloom, Japan's industrial output unexpectedly fell in July as a slowdown in exports to China and Europe led electronics and semiconductor makers to trim output.
Bucking the market trend, Nomura Holdings (8604.T) added 0.4 percent after public broadcaster NHK said Japan's top investment bank plans to cut about $1 billion in costs by shrinking its European operations.
Other gainers included Towa Pharmaceutical Co Ltd (4553.T), up 1.6 percent after JPMorgan lifted its price target on the drugmaker.
Tomioka said he favoured domestic-focused companies, including construction firms and real estate.
(Additional reporting by Sophie Knight; Editing by Edwina Gibbs)