Japan's Nikkei average fell 2.4 percent to a six-week closing low on Wednesday, hurt by an unexpected slide in domestic machinery orders and as the yen rose to seven-week highs against the dollar on talk of more stimulus for the US economy. Komatsu and other machinery makers dropped after Japan's core private-sector machinery orders fell 3.0 percent in May from the previous month, suggesting a recovery in capital spending may be delayed.
Market analysts say the equity market has been going through a reality check after data on Thursday showed US employers had shed nearly half a million jobs in June with the unemployment rate jumping to 9.5 percent, the highest in nearly 26 years.
"Market sentiment has deteriorated at a faster-than-expected pace following the weak US employment data and the adjustment phase could be a long drawn-out one," said Takashi Kamiya, chief economist at T&D Asset Management. The benchmark Nikkei lost 227.04 points to 9,420.75, its lowest close since May 26. Trade was moderate on the Tokyo exchange's first section, with 2.1 billion shares changing hands, in line with last week's daily average.
Declining stocks outnumbered advancing ones by more than 7 to 1. Analysts said selling by some short-term investors accelerated after the Nikkei touched its 13-week moving average of around 9,450. The broader Topix fell 2.3 percent to 888.54. Nervousness also prevailed ahead of earnings from aluminium producer and industry bellwether Alcoa which kicks off the US quarterly earnings season.
An adviser to President Barack Obama said on Tuesday the United States should be planning for a possible second round of fiscal stimulus to further prop up the economy after the $787 billion rescue package launched in February. That heightened fears that an economic recovery will be slow and that the corporate earnings season starting this week will be weak, sending the Dow Jones industrial average to its lowest close since April 28.
Another focal point was the Group of Eight industrial nations summit in Italy starting later on Wednesday. "At the summit, there could be moves to further regulate trading of oil futures. If regulations are tightened, that could discourage some investors from trading assets perceived to entail more risk, including stocks," said Shoji Yoshigoe, a senior investment strategist at Mitsubishi UFJ Securities.
Komatsu shed 3.5 percent to 1,385 yen. Kubota Corp dropped 4.4 percent to 732 yen and Hitachi Construction sank 3.4 percent to 1,443 yen. Hurt by the stronger yen, exporters like Honda declined 5.5 percent to 2,390 yen and Toyota Motor Corp fell 3.3 percent to 3,470 yen.
Chip-gear maker Tokyo Electron slumped 5.2 percent to 4,340 yen. Energy-linked stocks were hit, with oil on course for its sixth day of losses with economic recovery fears spurring risk aversion. Oil and gas field developer Inpex fell 1.4 percent to 702,000 yen. Oil refiner Nippon Mining Holdings dropped 4.6 percent to 436 yen.
Shares of Aeon Co Ltd, Japan's second largest retailer, fell 3.6 percent to 846 yen after it posted a 62 percent drop in operating profit for March-May as a slide in consumer spending hit its supermarkets and its US women's clothing unit Talbots. Gainers included Mixi, a social networking site, which surged 16.8 percent to 687,000 yen after UBS raised its target price on the stock to 900,000 yen from 530,000 yen and maintained a "buy" rating.
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