The Nikkei average lost 0.64 percent on Wednesday as exporters such as Honda Motor Co Ltd slid on a higher yen and caution about the US economy, offsetting gains in Inpex Holdings Inc and other energy shares following a rally in oil prices.
Steel shares including Nippon Steel Corp, along with utilities and other stocks with high dividend yields, declined as investors booked profits on them after stocks became ex-dividend on Tuesday ahead of the end of the business year for many firms at the end of March.
But shares in non-bank financial firms advanced after Mizuho Financial Group said it plans to announce details of a financial aid package for consumer loan company Orient Corp Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, said Tokyo stocks were sold as rising oil prices raised expectations that Fed Chairman Ben Bernanke may express concern about inflationary pressure in congressional testimony later in the day, a prospect that could send New York stocks tumbling by reducing expectations of a US rate cut.
The yen's rise towards 117 to the dollar, as well as declines in other Asian stock markets, also spurred selling of Japanese stocks, he said. "Considering external risk factors, people cannot buy shares just based on a positive earnings outlook for Japanese companies," he said.
The Nikkei closed down 110.32 points at 17,254.73. The broad TOPIX index fell 0.74 percent to 1,711.06. Trade activity hit its highest level in nearly two weeks, with 2.24 billion shares changing hands on the Tokyo exchange's first section. Decliners beat advancers by 967 to 604. Shares of technology firms and other exporters sagged, hit by continued concern about the outlook for the economy of the United States, a key market for Japanese goods.
Honda fell 2.4 percent to 4,100 yen, becoming the largest drag on the Nikkei. The company makes roughly two-fifths of its auto sales in the United States. Sony Corp fell 2.1 percent to 6,080 yen. Chip-equipment maker Advantest Corp slipped 1.5 percent to 5,260 yen, continuing a slide triggered on Tuesday by brokerage Credit Suisse's downgrading of the stock.
Among notable gainers, oil and gas producer Inpex rose 2.3 percent to 994,000 yen, benefiting from higher oil prices. US crude prices surged $5 a barrel in after-hours trade on Tuesday to $68.09, their highest in more than six months, on rumours that conflict had broken out between Iran and the United States. The White House later dismissed talk of military action, and crude eased back to $63.84 on Wednesday.
Shares of Orient Corp jumped 16.8 percent to 160 yen. The consumer lender said on Wednesday it would raise 290 billion yen ($2.5 billion) in new capital after it fell into financial difficulties.
Shares of Sanyo Electric Co Ltd rose 1.6 percent to 187 yen after a source close to the matter said on Tuesday the president of the beleaguered electronics maker would step down and be replaced by the company's vice president.
After the close of trading, Sumitomo Metal Industries Ltd, Japan's third-biggest steel maker, said it and French partner Vallourec have agreed to start discussion on establishing a seamless pipe joint venture in Brazil.
NTT DoCoMo Inc, Japan's top mobile phone operator, said after the close that it would cancel 930,000 of its own shares, or about 2 percent of those outstanding, on March 30. Mitsubishi UFJ Financial Group (MUFG), Japan's biggest bank, said it would swap 1.02 of its shares for each share in Mitsubishi UFJ Securities Co on September 30, a ratio that reflects MUFG's planned 1,000-for-1 share split on September 30.
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