Bloomberg News

Japan Stocks Fall Amid U.S., European Debt Concern; Canon Drops

July 19, 2011

July 19 (Bloomberg) -- Japanese stocks fell on concern that U.S. lawmakers will fail to reach a deal on the country’s debt limit two weeks before a deadline and that Europe’s worsening sovereign-debt crisis will slow the global economic recovery.

Canon Inc., the camera maker that receives 81 percent of its revenue abroad, declined 2.8 percent. Mitsubishi UFJ Financial Group Inc., the country’s biggest listed lender by market value, sank 2.5 percent as banks fell globally after stress tests on European lenders failed to alleviate investor concern over the region’s debt woes. Invincible Investment Inc., a real-estate investment trust, jumped 9.2 percent after Goldman Sachs Group Inc. said concerns of a default are receding after the company said it would sell shares to four investors.

The Nikkei 225 Stock Average sank 0.9 percent to 9,889.72 at the 3 p.m. close of trading in Tokyo. The broader Topix index lost 0.7 percent to 853.75, with about eight shares falling for every seven that advanced. Both gauges declined last week for the first time in four weeks.

“In the U.S., as well as concern about the economy, with the debt talks stalling, the outlook for the country is still unclear,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset?Management Co., which oversees about $104 billion. “We’re unable to see the end of the sovereign-debt crisis in Europe, and fears are refusing to abate. The results of what’s happening in Europe are beating down bank stocks here.”

Exporters Drop

Futures on the Standard & Poor’s 500 Index climbed 0.3 percent today. In New York, the index slipped 0.8 percent to 1,305.44 yesterday, pushing the measure to its worst seven-day period in more than a month, amid concern U.S. lawmakers will fail to reach a deal on the nation’s debt limit two weeks before an Aug. 2 deadline.

Exporters slid today on concern the outlook for fiscal deficit problems in the U.S. and Europe will curb their earnings. Canon slumped 2.8 percent to 3,680 yen, the second-biggest drag on the Topix index.

Honda Motor Co., the automaker which receives 44 percent of its sales from the U.S., declined 2 percent to 3,145 yen and was the third-biggest drag on the Topix. Nintendo Co., a game-maker that gets 92 percent of its sales abroad, sank 3.7 percent to 14,670 yen in Osaka. The company’s investment rating was also lowered to “neutral” from “outperform” by Macquarie Group Ltd., which cited the potential for sluggish sales of their 3DS console and the stronger yen damaging earnings.

Deficit Cutting Deal

Global stocks declined amid President Barack Obama’s efforts to get lawmakers to agree to a deficit-cutting deal as the deadline for raising the debt ceiling nears. U.S. equities have been under pressure amid growing concern lawmakers will fail to reach an agreement to raise the nation’s $14.3 trillion debt limit.

Shares also fell after Goldman Sachs Group Inc. economists led by Jan Hatzius, based in Germany, cut their forecasts for U.S. economic growth to 1.5 percent in the second quarter and 2.5 percent in the third quarter, from 2 percent and 3.25 percent respectively.

“On top of uncertainty about the U.S. economy, there can only be negativity if the U.S. governments’ functionality becomes paralyzed,” said Fumiyuki Nakanishi, senior strategist at SMBC Friend Securities Co. in Tokyo. “In Europe, the stress tests are being seen as too soft, and it’s just postponing the potential for problems.”

Banking Rout on Europe

Banks slumped in Tokyo today, led by Mitsubishi UFJ, which declined 2.5 percent to 383 yen, the biggest drag on the Topix index. Mizuho Financial Group Inc., the nation’s second-largest lender by assets, lost 2.3 percent to 126 yen. Sumitomo Mitsui Financial Group Inc., the No. 3 by assets, dropped 1.3 percent to 2,404 yen.

European shares declined yesterday on concern the region’s banks may have to raise as much as 80 billion euros ($113 billion) of additional capital as stress tests failed to allay investor concern about a Greek default and governments’ ability to bail out their lenders.

The European Banking Authority said after the close of trading on July 15 that eight of 90 banks had failed stress tests. Regulators didn’t include a Greek default in the tests even though credit default swaps indicate investors see an almost 90 percent chance of one.

Among shares that rose, Invincible Investment jumped 9.2 percent to 12,350 yen. Goldman Sachs said the risk of a default by the investment trust has reduced after the company said on July 15 that it plans to sell 711,597 shares valued at 7 billion yen ($88 million) to four investors, including a subsidiary of Fortress Investment Group LLC.

--With assistance from Toshiro Hasegawa in Tokyo. Editor: John McCluskey.

To contact the reporter on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.


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