Nikkei slips 1.4 percent as yen, credit worries weigh

TOKYO (Reuters) - Japan’s Nikkei average fell 1.4 percent on Thursday after a recent sharp rebound, as credit troubles overseas weighed on investor confidence and a stronger yen pressured shares of exporters.

Suzuki Motor skidded 6.5 percent, erasing the gain logged Wednesday on hopes for an alliance agreement with Volkswagen, after an analyst said valuations for the stock had risen too high. The deal was announced after the closing bell on Wednesday.

Ratings agency Standard & Poor’s on Wednesday warned that Spain risks a debt downgrade in two years if the government does not take tough action on its fiscal deficit.

Fitch Ratings has already downgraded Greece, while Moody’s cut the ratings of six Dubai-linked issuers after concluding that no “meaningful” government support would be provided to top firms like DP World.

“Credit worries in places like Dubai and Spain are curbing investors’ appetite to keep buying stocks, sending the market lower,” said Soichiro Monji, a chief strategist at Daiwa SB Investments.

“We still don’t know whether these problems will persist for a long time, but they are clearly putting a lid on the global stock market at the moment,” Monji said.

In light trade, the benchmark Nikkei lost 141.90 points to 9,862.82, falling for a third day after having gained nearly 12 percent in a six-day rally to Monday.

The broader Topix retreated 1.3 percent to 873.90.

“There’s a growing view in the market that the sharp rally we saw recently has almost run its course,” said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.

A man looks at a stock quotation board outside a brokerage in Tokyo November 2, 2009. REUTERS/Toru Hanai

“Investors appear to be unwinding their risk-taking positions, partly triggered by rising credit worries in Europe and the Middle East.”

The dollar trimmed earlier gains to trade below 88 yen. Investors fret about a stronger yen because it eats into exporters’ overseas profits.


Suzuki dropped to 2,215 yen.

“We believe the firm will benefit from the technology alliance with Volkswagen, but anticipation of tie-up news has already driven its valuation...considerably higher” than those of its Japanese rivals, said Morgan Stanley analyst Noriaki Hirakawa.

Among other exporters, Honda Motor Co slipped 1.5 percent to 2,930 yen and Toyota Motor Corp shed 1.6 percent to 3,650 yen. Tokyo Electron Ltd gave up 2.9 percent to 5,300 yen.

But Sanyo Electric surged 10.7 percent to 176 yen following the closure of Panasonic Corp’s tender offer the previous day, with Panasonic expected to take a majority stake, leading to synergies between the two electronics firms.

The share rise also follows news of Suzuki’s announcement of its alliance with Volkswagen, which develops lithium-ion batteries with Sanyo, raising hopes that Sanyo’s batteries could be used in more cars.

JFE Holdings Inc, the world’s sixth-biggest steelmaker, rose 1.2 percent to 3,350 yen, bucking a decline in the sector after Goldman Sachs said the stock is undervalued given the continuing rise in Asian spot steel prices and JFE’s big exposure to regional prices.

Rajeev Das, a Goldman Sachs analyst, said the rise in Asian spot prices will accelerate in January thanks to the strength in the Chinese economy.

Some 2 billion shares changed hands on the Tokyo exchange’s first section, below last week’s daily average of 2.4 billion.

Declining stocks outnumbered advancing ones by nearly 3 to 1.

Editing by Chris Gallagher