Bloomberg News

Japanese Stocks Pare Gains at Close as Europe Optimism Fizzles

October 19, 2011

Oct. 19 (Bloomberg) -- Japanese stocks finished higher, with key gauges paring gains, after a downgrade of Spain’s credit rating by Moody’s Investors Services overshadowed a report that Europe is close to a deal on boosting the firepower of a rescue fund for the debt-stricken region.

Sumitomo Mitsui Financial Group Inc., Japan’s second- largest lender by market value, added 0.1 percent after swinging between gains and losses. Nippon Sheet Glass Co., which counts Europe as its biggest market, dropped 1.2 percent. Elpida Memory Inc. led declines among suppliers to Apple Inc. after the iPhone maker’s earnings missed analysts’ estimates.

The Nikkei 225 Stock Average gained 0.4 percent to 8,772.54 at the 3 p.m. close in Tokyo, paring gains of as much as 1 percent. The broader Topix index was little changed at 751.49. The gauge tumbled 16 percent this year amid concerns over Europe’s debt crisis, cutting the price of the index’s shares to 0.9 times estimated book value, near the lowest since March 2009.

“Without a solid reason to buy, the market loses momentum,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “Investors are taking a wait-and-see stance until the European summit.”

Futures on the Standard & Poor’s 500 Index fell 0.5 percent today after Apple missed analysts’ earnings estimates for the first time in at least six years. The S&P 500 rose 2 percent in New York yesterday, surging in the final hour of trading, after the Guardian newspaper reported Germany and France have agreed to boost the rescue fund to 2 trillion euros ($2.8 trillion).

‘Long-Term Work’

No deal has been reached between the two countries on expanding the European rescue fund, a person with direct knowledge of the talks told Bloomberg News. The Guardian report also contradicted comments by German Chancellor Angela Merkel, who sought to lower expectations Europe would produce a solution to its crisis during a regional summit on Oct. 23.

“These sovereign debts have built up over decades, so they won’t be ended with one summit,” Merkel told reporters in Berlin. “This will require tough, long-term work.”

Spain’s credit rating was cut for the third time since June last year by Moody’s Investors Service as Europe’s debt crisis threatens to engulf the nation. The rating was cut two levels to A1 from Aa2 by the agency, which kept the outlook negative, citing the “continued vulnerability of Spain to market stress.”

Tempered Expectations

Japanese lenders pared gains. Shares advanced earlier after Bank of America, which yesterday reported it swung to a profit last quarter, led U.S. financial firms higher. Sumitomo Mitsui Financial added 0.1 percent to 2,155 yen after gaining as much as 2 percent. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, advanced 0.9 percent to 338 yen, paring gains of as much as 1.8 percent.

Exporters to Europe fell. Nippon Sheet Glass dropped 1.2 percent to 171 yen. Nissan Motor Co., the Japanese carmaker most dependent on sales to Europe, fell 1 percent to 709 yen.

Construction companies declined after Obayashi Corp., Japan’s fourth-biggest builder by revenue, posted first-half profit that missed its forecast by 12 percent. Obayashi’s earnings tempered investor expectations about how much the sector would benefit from the rebuilding effort after the March earthquake, said Hiroki Kawashima, a Tokyo-based analyst at SMBC Nikko Securities Inc.

Obayashi sank 3.5 percent to 355 yen. Shimizu Corp., Japan’s biggest contractor by revenue, declined 3 percent to 328 yen. Kajima Corp., the second-largest, slumped 5.5 percent to 242 yen, the most on the Nikkei 225.

iPhone Effect

Technology stocks declined after Apple posted earnings that missed estimates as customers put off purchases of iPhones before the release of the latest model.

Elpida, which makes computer memory chips, tumbled 5.3 percent to 486 yen. Toshiba Corp., which supplies chips used to store music and movies on the iPhone, declined 2.4 percent to 332 yen.

Mazda Motor Corp. slid 3.7 percent to 158 yen after the carmaker said it will halt production of passenger cars in Thailand from today until Oct. 22 because of a parts shortage caused by the nation’s worst floods in 50 years.

DeNA Co., a social media website operator, plunged 7.9 percent to 3,135 yen. Shares declined after the Nikkei newspaper reported the company would pay 10 billion yen ($130 million) for a stake in the Yokohama BayStars professional baseball team.

--With assistance from Kana Nishizawa in Hong Kong. Editors: Jason Clenfield, Jim Powell.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Masaaki Iwamoto in Tokyo at miwamoto4@bloomberg.net.

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


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