TOKYO: Japan's Nikkei share average is expected to drop to a two-month low on Tuesday, likely dragged down by exporters after the dollar broke below the 100-yen level as weak US manufacturing data raised concerns about the health of the world's largest economy.
Market players said the Nikkei was likely to trade between 13,000 and 13,300 on Tuesday, after tumbling 3.7 percent to a six-week low of 13,261.82 on Monday.
The index has fallen 16.8 percent from a 5-1/2 year peak hit last month, hurt by worries over slowing growth in China and the outlook for the US Federal Reserve's stimulus policies.
Nikkei futures in Chicago <0#NIY:> finished at 13,190, down 0.4 percent from the close in Osaka of 13,240.
Analysts said the Nikkei may test a new low in early trade, but buyers may emerge in dips given the sharp drop in the index in recent sessions.
"After absorbing the shock of the yen rising above the 100 yen to the dollar, we may see a technical rebound," said Toshihiko Matsuno, chief strategist at SMBC Friend Securities.
On Monday, the dollar fell below 100 yen, hitting as low as 98.86 yen, its lowest since May 9, as the weak US data raised concerns about the US economy. The dollar last traded at 99.54.
The dollar slightly pared its losses versus the yen after news of a Japanese policy shift. Sources told Reuters that Japan's government is set to urge the nation's public pension funds - a pool of over $2 trillion - to increase their investment in equities and overseas assets as part of a growth strategy being readied by Prime Minister Shinzo Abe.
"Pension funds tend to play it safe... they invest in equities when stock prices are cheap, but if that trend is changing it would serve as a support to investor sentiment," said SMBC's Matsuno. "But it's too early to believe that pension funds are aggressively chasing the market higher, so we need more details."
Analysts also said that the mood remains depressed since the Federal Reserve raised the prospect of scaling back its stimulus program if the economy shows a sustainable recovery.
Investors are now on edge over the Fed's policy outlook as the latest data pointed to a sluggish US economic recovery, they said.
US manufacturing contracted in May, hitting the lowest level since June 2009, according to the Institute for Supply Management on Monday, though a government report showed spending on construction rose slightly in April.
<Center><b><i>Copyright Reuters, 2013</b></i><br></center>
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