Bloomberg News

Japanese Stocks Fall on Italy Bond Yields, Daiwa Rating Cut

November 10, 2011

Nov. 10 (Bloomberg) --?Japan’s stocks fell the most in three months after surging Italian bond yields stoked concern that Europe’s debt crisis is spreading and Daiwa Securities Group Inc. had its credit rating cut.

Sumitomo Mitsui Financial Group Inc., Japan’s second- biggest lender, fell 4.7 percent. Chipmakers slid after the price of benchmark DRAM computer memory fell to a record low. Brokerages declined after Moody’s Investors Service cut Daiwa’s credit rating and said it may cut Nomura Holdings Inc.’s as global expansions by Japan’s two biggest securities firms unravel. Hitachi Construction Machinery Co. led machinery firms lower after orders declined more than forecast.

The Nikkei 225 slid 2.9 percent to 8,500.80 as of the 3 p.m. trading close in Tokyo, the biggest daily loss since Aug. 5. The gauge has swung between weekly gains and losses for 10 weeks, the longest up-and-down period since at least February 1989. The broader Topix index fell 2.6 percent to 730.30 with all its 33 industry groups declining as the gauge had its steepest drop since Aug. 5.

“The big concern is that Italy will need to get its funding from other sources than the market, but because of its size, people are very worried,” said Stephen Halmarick, Sydney- based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The outcome of all this is the European economy will go into recession. That’s a big negative.”

Italian Yields

The Standard & Poor’s 500 Index fell 3.7 percent yesterday with just one stock advancing, the lowest number since June 29, 2010. Italy’s 10-year bond yield surged to a euro-era high of 7.25 percent as the promised exit of Prime Minister Silvio Berlusconi failed to convince investors the country can slash Europe’s second-largest debt burden. Futures on the S&P 500 fell 0.1 percent today.

Banks and electronic appliance makers fell. Sumitomo Mitsui Financial Group slid 4.7 percent to 2,030 yen, and Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, lost 2.7 percent to 329 yen. Sony Corp., Japan’s No. 1 exporter of consumer electronics that gets 21 percent of its sales in Europe, lost 4.7 percent to 1,322 yen.

Chipmakers slid after the price of DDR3 2-gigabit DRAM slumped to 77 cents today, the lowest on record, according to Bloomberg data. Elpida Memory Inc. dropped 10 percent to 377 yen. Toshiba Corp., which gets 18 percent of sales from semiconductors, retreated 6.7 percent to 323 yen. Tokyo Electron Ltd., a maker of semiconductor equipment, lost 5.9 percent to 3,930 yen.

Daiwa Rating Cut

Nomura, Japan’s biggest brokerage by market value, fell 3.1 percent to 247 yen after its rating was put on review for possible downgrade from Baa2, the second-lowest investment grade, Moody’s said in a statement. Daiwa, which had its rating cut to Baa3, slumped 3.5 percent to 252 yen. Both companies posted losses last quarter as trading and investment banking income declined and overseas operations slumped.

Machinery makers fell after orders, an indicator of future capital spending, fell 8.2 percent in September from August, Japan’s Cabinet Office said. Economists surveyed by Bloomberg News had estimated a 7.1 percent decline.

Hitachi Construction slid 6 percent 1,441 yen, and Komatsu Ltd., Japan’s largest construction machinery maker, fell 5.1 percent to 1,898 yen. Fanuc Corp., a maker of factory automation systems, fell 4.1 percent to 12,280 yen.

The Topix index has dropped 4.3 percent since Oct. 27, when Japan’s earnings season started in earnest. Of the 1,199 companies on the Topix index that have reported quarterly earnings, 161 missed analyst estimates and 132 beat expectations, according to Bloomberg data.

‘Below Expectations’

“Clearly, corporate earnings have fallen below expectations,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “This needs to improve with demand for post-quake reconstruction. However, Japan’s corporate earnings won’t get better unless we see good numbers out of exporters.”

Shares of Olympus Corp., an optical-equipment maker, fell by its daily limit for a third day after admitting it concealed losses. The stock fell yesterday by the daily limit for a second day. The Tokyo Prosecutor’s Office is investigating whether Olympus broke securities laws by inflating fees to advisers to cover up decades of investment losses. Olympus fell 17 percent to 484 yen.

--Editors: Jason Clenfield, Jim Powell.

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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