Bloomberg News

Japanese Stocks Fall Most in 7 Weeks on Europe Rescue Concern

November 02, 2011

Nov. 2 (Bloomberg) --?Japanese stocks fell for a third day, with the benchmark Nikkei 225 Stock Average dropping the most in seven weeks, amid concern a Greek referendum will derail Europe’s rescue plan.

Mitsubishi UFJ Financial Group Inc. led declines among Japanese lenders after European banks plunged yesterday. Nomura Holdings Inc. slumped 4.1 percent after the brokerage posted its first quarterly loss in more than two years. Mitsui O.S.K. Lines Ltd. plunged 5.8 percent after shipping rates fell for a fifth day and commodity prices slid.

The Nikkei 225 dropped 2.2 percent to 8,640.42 at the 3 p.m. close of trading in Tokyo, the steepest drop since Sept. 12. The gauge has lost 4.5 percent in the last three trading days, erasing most of the gains made last week after Europe appeared to make a breakthrough on a deal to contain the debt crisis. The broader Topix index fell 2.1 percent to 738.58 today. Japan’s markets are closed tomorrow for a public holiday.

“We don’t know how the Greek referendum will turn out and the market will look at downside risks until the result comes out,” said Kazuyuki Terao, chief investment officer of RCM Japan Co. “We are likely to see risk aversion. I expect stocks will lose recent gains fast.”

Futures on the Standard & Poor’s 500 Index advanced 0.5 percent today. The index dropped 2.8 percent yesterday in New York after Greek Prime Minister George Papandreou said voters should decide if they’ll accept the terms of Europe’s bailout package. Papandreou raised the stakes today when he said the referendum should address the question of whether Greece will stay in the euro zone.

‘More Necessary’

Exporters and banks were the biggest drags on the Topix after German Chancellor Angela Merkel and French President Nicolas Sarkozy held emergency talks on Greece yesterday. The plan thrashed out among Europe leaders last week to aid Greece and stem the wider debt crisis is “more necessary than ever,” they said in a joint statement ahead of a Nov. 3-4 Group of 20 summit in Cannes, France.

“People were naturally skeptical that the resolution last week in Europe was going to bring an end to the volatility in markets, and that’s clearly the case with what we’ve seen,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne.

Mitsubishi UFJ Financial Group fell 2.3 percent to 334 yen. Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest lender, lost 2.2 percent to 2,144 yen.

Stocks also fell amid signs U.S. manufacturing is slowing. The U.S. Institute for Supply Management’s factory index dropped to 50.8 last month from 51.6 in September, a report showed yesterday. The number was below the median economist prediction of 52. Fifty is the dividing line between growth and contraction.

FOMC Decision

Slowing factory production adds to evidence the U.S. Federal Reserve will hint at further measures to boost the economy when it releases a policy statement later today. Some 69 percent of economists surveyed by Bloomberg say the Fed will eventually embark on a third round of asset purchases, or quantitative easing, though they are unlikely to announce a decision today.

“Fed board members have made a series of comments that point toward QE3,” said Yutaka Yoshii, a strategist at Mito Securities Co. in Tokyo. “Currencies could move a lot depending on what we hear from them in the statement.”

Japanese exporters have been hurt by the yen’s surge last month to a postwar record against the dollar and by flooding in Thailand, which has damaged factories at Honda Motor Co. and Sony Corp. The Topix index added 0.4 percent last month, while the S&P 500 Index surged 14 percent.

Sony, Toyota

Sony, Japan’s No. 1 exporter of consumer electronics, slumped 3.6 percent to 1,520 yen before reporting earnings after Japanese markets closed. The company said it expects a full-year loss of 90 billion yen ($1.2 billion) because of the yen’s appreciation and falling television sales. Sony had previously forecasted a 60 billion yen profit.

Japan’s top carmakers slid today. Toyota Motor Corp. dropped 3.5 percent to 2,505 yen after the automaker said its U.S. sales fell percent last month. Honda dropped 4.2 percent to 2,304 yen. The carmaker plans to cut production in Brazil, England and the Philippines because of parts shortages stemming from Thailand’s floods, Keitaro Yamamoto, a spokesman for the company, said by phone today.

Shipping lines fell after the Baltic Dry Index, a measure of shipping rates for commodities, dropped yesterday. Nippon Yusen K.K., Japan’s biggest shipper by sales, declined 3.1 percent to 189 yen. Mitsui O.S.K., the No. 2, dropped 5.8 percent to 274 yen, and Kawasaki Kisen Kaisha Ltd., the No. 3, lost 5.7 percent to 149 yen.

Nomura, Japan’s biggest brokerage, lost 4.1 percent to 282 yen after it swung to a first-half loss of 28.3 billion yen from a profit of 3.3 billion yen a year earlier as income from trading and investment fell.

--With assistance from Kana Nishizawa and Satoshi Kawano in Tokyo. Editors: Jim Powell, Jason Clenfield.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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


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